Eurozone Officially In Recession
For the second time since 2009, the Eurozone has slipped into a recession:
(Reuters) – The debt crisis dragged the euro zone into its second recession since 2009 in the third quarter despite modest growth in Germany andFrance, data showed on Thursday.
The two leading economies both managed 0.2 percent growth in the July-to-September period.
But the resilience could not save the austerity-hit 17-nation bloc from overall contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.
Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2-percent drop in the second quarter.
Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009is still reverberating around the globe and holding back a lasting recovery from the Great Recession of 2008/2009 in much of the world.
“That was the last good number Germany for the time being,” said Joerg Kraemer, chief economist at Commerzbank. “The business climate … has caved in.”
Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. Where Germany goes, France is likely to follow and economists expect its economy to shrink in the October-to-December period.
For all of 2012, the European Commission sees the euro zone contracting 0.4 percent, while growing just 0.1 percent in 2013. Business surveys point to difficult times ahead and the public’s backlash to austerity policies is growing.
Millions of workers went on strike across Europe on Wednesday to protest the government spending cuts they say are driving the region into a deeper malaise but which Germany and the Commission say are crucial to healing the wounds of a decade-long, credit-fuelled boom.
“We are now getting into a double dip recession which is entirely self-made,” said Paul De Grauwe, an economist with the London School of Economics. “It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else,” he said.
That may be true, but the fact is that Europe simply doesn’t have the resources to avoid the austerity that these workers are complaining about. Moreover, nations like Greece, Spain, and Italy have dug themselves into such a large hole thanks in no small part to their overly generous social welfare states that they really have no other choice but to enact these policies in order to get their house back in order. Finally, there are the political factors. Germany and France, the two nations that have been the lender of last resort for the Eurozone are both on the verge of recession themselves. They simply don’t have the ability to do whatever it is these protesters want them to do, and if those two nations slip into recession as expected, then things are likely to get worse in the rest of the Eurozone. At this point, one wonders why they’re continuing the Eurozone experiment to begin with.
France came oh-so-close to the classical definition of recession. The quarterly change (not annualized like the US GDP estimates) over the last 4 quarters were 0.0%, 0.0%, -0.1%, +0.2%, yielding a year-over-year change of +0.1%.
Speaking of year-over-year changes, the Euro area 2011Q3 to 2012Q3 change in GDP was -0.6% (yes, that is a minus sign).
That image is not of the Eurozone, it’s an old, pre 2004, image of the European Union.
BS on Spain, Doug. They had reduced their pre-crisis debt to GDP to perfectly acceptable levels. They were not throwing some sort of welfare kegger.
But whatever. Austerity will surely work, soon, surely. The beatings will continue until morale improves. What’s Spain’s unemployment rate now?
Greece is a legit example of a dysfunctional country, but they’re small. If this was about Greece, it would be much ado about… well, not nothing, but little (except, of course, for Greeks!).
As for Germany and France… hmm. They didn’t want to shore up the “lazy” southern Europeans. Will they now be shocked (shocked I tell you!) that they’re having trouble selling enough stuff to avoid recession themselves?
This is just depressing.
But once you add in larger economies, it gets ugly.
There are two significant differences between the U.S. and the Eurozone. One, we had the good fortune to have Barack Obama instead of Angela Merkel. Two, to use the common rhetoric on the Eurozone, in the U.S the wealthy, virtuous, hard working northern states routinely subsidize the lazy, dependent southern states. (Otherwise known as the Republican base.) As someone said a couple days ago, if the south secedes, CA will immediately have a budget surplus and AL won’t be able to pay for stop signs.
Also, we have our own currency and our own central bank. As a result, let me suggest a rule: Anyone who says the U.S. will end up like Greece is an ignorant twit to whom no further attention shoud be paid.
@Rob in CT: Yes. Bankrupt your customers. What could possibly go wrong?
Right. We have massive internal transfers of wealth from state to state, and while there is periodic complaining, nothing ever comes of it. We accept it as part of being a nation. Europe is not a nation. Turns out a currency union w/o a political one wasn’t a brilliant idea.
To add, the amount of “wealth distribution” among states in the EU is nothing compared to the “wealth distribution” among states in the US.
In 2011, Germany paid $29.5 million to the EU and received $15.3 million from the EU. Poland paid $4.6 million and received $18.4 millions.
In 2007, California paid $314 million in federal tax and received $260 million, New Jersey paid $122 million and received $64 million.
Mississippi paid $11 million and received $31 million, Virginia paid $62 million and received $110 million, Alabama paid $24 million and received $48 million.
Billions not millions. Moron.
What, are the printing presses broken in Europe or something?
I say that tongue-in-cheek, but the fact is, a monetary union has to have monetary policy that benefits everyone. Europe is only limited in resources politically, not in reality. And as pointed out, fiscal policy should also fall under that.
And dear god can we stop pretending places like Greece have a generous welfare state. It’s Greece…, not the pinnacle of western civilization. The debt crises facing these countries is almost entirely due to bank bailouts.
Did Europe run out of food? Did it run out of doctors, or hospitals, or roads, or housing? What do you mean that Europe doesn’t have the necessary resources? What resources are they short of?
@Console: Absolutely. It cannot be overstressed that this was a private debt crisis, not a government debt crisis. It’s becoming a government debt crisis because of lost revenue and, as you say, bailing out banks.
It was a great disappointment to me to realize that European governments and the EU are in the pockets of banks as badly as we are. And that apparently Germany is full of some equivalent of hillbilly Tea Partiers.
Germany does not have the money to shore up the whole Europe. Most of the other countries that are financially stable(Finland, Austria, Netherlands) are small countries.
Besides that, the biggest problem with countries like Spain and Greece is the absence of an economic base There are some big Spanish companies in the services and banking sector that managed to grow during the privatizations in Latin America, but I don´t remember any big Spanish company in manufacturing or IT.
I blame Obama.
In what way is money a finite resource in this situation? They seem to be able to come up with Euros when the bankers are asking for it…
@Andre Kenji: The ECB can credit any amount necessary to end Europe’s recession and generate robust growth within three quarters. There is no such thing as a currency issuer running out of currency.
Germany provided hundreds of billions of euros to their poorer neighbors, both in bail outs and structural funds. and there are large numbers of Germans that says that they want to help their partners. Germany sent fair more money to Greece than Britain, a country where there is real opposition to fund these bailouts. There is no German BNP, no German Le Pen.
Besides that, there are deeper problems in Southern Europe, like an ageing population, bad public services, lack of an industrial base(With the exception of Northern Italy) or any source of exports. There is no money that can save that. By the way, for decades these country spent large amounts of money on infrastructure, trying to spur the economy.
Americans could say the same thing about Mississippi, but we aren’t letting Mississippi languish in depression and holding their citizen’s welfare programs hostage while we bail out banks.
At some point the Union has to be something more than just a name and a currency.
And for decades those countries experienced growth, until the current SM austerity fetish kicked in. Those nations are more than productive enough to support the agrarian lifestyles led by the majority of the populace. Unless you have some evidence to the contrary.
No, Mississippi always had a strong agricultural sector, today they have industries.
There is no “austerity fetish”. The government of these countries enacted austerity measures only when they discovered that they have lost access to the easy money in the bond markets in 2007. And there are articles from the 80´s talking about these structural problems in Europe.
As Weimar Germany and Zimbabwe and most of Latin America knows pretty well.
@Andre Kenji: The industry that Mississippi and Alabama have currently is due in large part to the fact that they are still part of the US, with all of the federal-level regulatory and economic consistency that entails. When BMW built its plant in Tuscaloosa, it was looking to build cars in the US, and the actual state it picked was less important. However, what would motivate BMW to build a plant in Spain rather than Germany?
@Gromitt Gunn: Sorry, Mercedes-Benz picked Tuscaloosa, AL. BMW picked Spartanburg, South Carolina.
This is why you can’t be taken seriously. Neither Germany or Latin America were sovereign currency issuers.
Are you high? What do articles from the 80’s have to do with the structure of the eurozone today? Can you even produce them?
That´s the problem. These countries thought that joining the EU would substitute improving productivity and investments in industry and agriculture. It did not work. Today they have an inefficient and expensive workforce, a no-no for industries.
I´m not advocating printing money as a solution to the world´s problems.
Because the main problem here is not the “structure of the eurozone”. The problem is Europe, that has low productivity, high labor costs, insane bureaucracy and high business costs. These problems are well known for decades.
Analysis by an economist expert in that area of the world.
Wingnut opinion, lifted out of Freedom Works, Heritage Foundation, and like. Austerity failed to lift countries out of recession and financial crisis-AGAIN!
If Ludwig von Mises and Fredreich Hayek were still alive, this economic crisis would have never happened. And if it did, their remedies to alleviate it would have worked. So what if they never have in the past? Conservative economic theory CANNOT fail.
I post this link for anyone actually interested in understanding hyperinflation, rather than conservative talking points about how government printing a dollar will destroy the universe.