I’ve been seeing a lot of headlines lately about how Europe’s recent small and patchy improvements in economic growth and consumer confidence are signs that the eurozone has at last succeeded in riding out the worst consequences of their collective debt crisis and is finally entering a period of recovery. For instance:
Europe must move ahead on its banking union project to help the region exit an economic and debt crisis whose end is now “within sight,” the European Union’s top official said Wednesday.
In his annual address to the European Parliament, European Commission President Jose Manuel Barroso said the region has “started to convince” financial markets and Europe’s partners that it is turning its back on a crisis that has seen five countries seek a bailout and produced a long, protracted downturn.
“Of course we need to be vigilant…Even one fine quarter doesn’t mean we are out of the economic heavy weather. But it does prove we are on the right track,” he said.
Hmm. While it may be true that certain economic and financial factors are stabilizing, at least for the moment, that sounds a lot more like complacent optimism than it does an honest assessment of Europe’s prospects and goals. I wouldn’t exactly categorize widespread unemployment and multiple countries’ uncontained debt trajectories as being on the “right track”:
“Europe, it seems, has become anaesthetised to bad news,” says Simon Tilford from the Centre for European Reform. Tentative signs of life after six quarters of contraction are deemed a vindication of shock therapy, even as the underlying crisis gets worse in almost every key respect.
“The reality is that the Spanish and Italian economies will shrink by a further 2pc in 2013. Greece is on course to contract by an additional 5pc to 7pc and Portugal by 3pc to 4pc. Far from being on the mend, the economic crisis across the South is deepening. Real interest rates are increasing from already high levels,” he said. …
Mr Tilford says the elephant in the room is the rise in the debts of Portugal and Spain by 15 percentage points (pp) of GDP over the past year, by 18pp in Ireland and by 24pp in Greece. Italy’s ratio rose 7pp to 130pc of GDP, already at or near the point of no return.
And of course, it isn’t just Greece, Portugal, and etcetera with crushing debt problems. The bulk of the eurozone’s few tenths of a percent of economic growth in the second quarter largely rested upon the contributions of Germany’s 0.7 percent growth rate and France’s 05 percent rate — but France is yet again blithely revising the extent of their compliance with the deficit-reduction targets by which they promised Brussels they would abide. They’re supposed to be keeping their public spending below three percent of GPD, but obviously, that’s not happening. Via the WSJ:
France’s government said Wednesday it will miss its deficit targets this year and next due to a weaker-than-expected economic recovery.
Finance Minister Pierre Moscovici said at a news conference that the public budget deficit will be 4.1% of economic output this year instead of 3.7%, and 3.6% in 2014 rather than 2.9%.
Mr. Moscovici said the new deficit targets will help economic growth by not inflicting austerity on the economy, which the government forecasts will grow only 0.1% this year. He said growth will accelerate to 0.9% next year, while the government was previously banking on 1.2%.
Really? Economic growth was unexpectedly weaker than you thought it would be, after effectively raising the country’s total 2013 tax pressures to a historical high of over 46 percent (which included raising the country’s top marginal income tax rate to one hundred percent)? I just can’t imagine why that didn’t work.