The European Austerity Experiment…
Hello, dear reader! I’m currently still working on matters to do with piracy, but I thought I might touch briefly on new economic information coming out of Europe. Eurostat, the directorate responsible for European level statistical gathering (think the Bureau of Economic Statistics for the EU) has released the latest statistical findings on European economic growth for 2011. (You may access the statistical report here if you are so inclined)
To say that things are not so great across the Atlantic is a bit of an understatement. Some of it is from the Mediterranean illness: Greece has contracted 7% over the last year, Italy has a foot in the recession coffin with a 0.7% contraction on a quarterly basis. Yet this isn’t confined merely to the PIIGS. We see that Britain is facing a dip back into technical recession (which we will all recall is 2 quarters of contraction), and the Netherlands are already there. Slovenia, a typically stalwart member of the Eurozone has seen zero growth or contraction over the last year. Things on the whole look quite grim.
With budget deficits on the rise and the inability for central banks to resort to quantitative easing for stimulus measures, the EU has served as an interesting natural experiment in austerity economics. So far the result seems to be coming up negative. Not only has economic growth ground to a stand-still, the actual budget deficits haven’t closed and the entire monetary union stands on a knife’s edge.
The tenuous nature of this stability is visible in the election climate in France. There the Parti socialiste candidate Francois Hollande is leading the incumbent Monsieur Sarkozy by a whopping 15 point margin. Next to Newt Gingrich, Sarkozy appears to be the least popular conservative candidate running for a major presidency in the world.
The silver lining is that perhaps the fall of Sarkozy might force Ms. Merkel’s government in Germany to take seriously the possibility of monetary dissolution and take out their checkbook. Afterall, the major beneficiary of the Euro has been Germany. Before the advent of the single currency, German economic growth was sluggish, its competitiveness within Europe hampered by a strong Deutsche-Mark and made even worse abroad due to its quasi-reserve currency status and hard value. Since 2000 Germany has been one of the strongest performers in Europe, helped by a leveling of the monetary playing field within the Eurozone and a cheaper currency abroad.
They’ve profited nicely from 12 years of monetary union, the question is are they willing to actually pay the cost of supporting weaker economies and living off their backs? The future of the global economy might very well depend on their answer to this question.