Eurozone back in recession

 
Anti-austerity protesters in Madrid, 14 November Millions of Europeans took industrial action on Wednesday

The eurozone is back in its second recession since 2009. Double dip is here.

Both France and Germany managed modest growth in the third quarter, but their economies are slowing. The eurozone's strongest economies cannot escape the ill winds blowing elsewhere.

Spain is now in the second year of recession. Its economy has been shrinking for 15 months. The economy which saw the biggest fall in the last quarter was the Netherlands - it shrank by 1.1%. Both northern and southern Europe are hurting.

The charge levelled at Germany and the European Commission is that they under-estimated the effects of austerity on output. There are signs that the Commission is backtracking. Spain is the latest country to be allowed to miss targets for reducing its deficit and to be granted a reprieve. Portugal and Greece have also been granted more time.

The eurozone is in a bind. Its policy is to reduce deficits and to adopt structural reforms, such as greater flexibility in the labour market. The heart of the problem, however, is the lack of competitiveness of many southern countries in relation to Germany. The gap cannot be narrowed by devaluation in a monetary union. The only option is to slash wages and pensions and to reduce unit labour costs. That, of course, weakens demand and pushes countries further into recession.

That is what is driving the massive protests - the sense that countries face years of hardship. The single currency is not seen as delivering higher living standards, but pain. And next year the European Commission sees growth of 0.1% at best.

There are some green shoots: Spain and Portugal's exports are doing well, but it is doubtful that exports alone will return these countries to growth. What they may indicate is that over time some of the reforms will bring benefits, but Europe does not have time.

It was noticeable last night in Madrid that when Chancellor Angela Merkel's name was mentioned the boos echoed around the crowd. One of the leaders of the union which organised the protests said today "nothing is getting better. The situation is getting worse". The size of the crowds on the streets last night - maybe 300,000, maybe more - should serve as a warning that Europe's people will not be patient for ever.

The President of the European Central Bank, Mario Draghi, has spoken of "a slow, gradual, but also solid recovery". It does not feel that way and Europe's officials have a poor record in judging this crisis.

Today's figures and the street protests are likely to strengthen the hands of those who say the current policy is damaging Europe's economy.

 
Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    -3

    Comment number 14.

    '''when political leaders take decisions that are blatantly causing harm against the very basic interests of the state, then the citizens should not worry much about their leaders' '''lack of skills''' but should worry more about their leaders' actual targets''.

    2400 years ago.. by Thucydides. Few ever pay attention. People try to imagine ''unskilled, corrupt leaders'' all to avoid seeing reality

  • rate this
    +2

    Comment number 13.

    Is John from Hendon talking about destroying this system (like setting fire to grassland in Africa) in order to create a better and fairer one?

  • rate this
    -1

    Comment number 12.

    4. "How many BILLIONS of euros are still hidden in Caimans , Lichtenstein and Switzerland by German tax evadors?"

    Or, more urgently, how much corporation tax are we losing to Luxembourg's tax dodger-friendly laws?

    I've got a nasty feeling the EU will be very slow to act on this since that's where a lot of their institutions are based.

  • rate this
    -2

    Comment number 11.

    oh well let's just write off everyone's debt then and forget about it all. It's obviously the fault of 'austerity', nothing to do with having taken out too much debt in the first place...

  • rate this
    +10

    Comment number 10.

    Mmmmm...

    So Marx was right after all.

  • rate this
    +8

    Comment number 9.

    My, my Gavin. You mean that raising taxes and throwing people out of work doesn't magically lead to an economic boom?

    Well, next you'll have us believe that the Pope is catholic!

  • rate this
    -2

    Comment number 8.

    Well, destruction of workers' rights is the main reason why corrupt governments in southern Europe have accepted the suicidal notion of a common currency with the likes of Germany. In the end every country in the Eurozone (and their partners besides) will be worse off, apart from big banks and such who are giving themselves time to move their money elsewhere.

  • rate this
    +9

    Comment number 7.

    6.grpper "nothing can now prevent the system from collapsing"

    But what seems to be a collapse is in fact a resetting of the system.

    We have the choice to wait and watch an agonisingly slow collapse or take the bull but the horns and nudge the system over the edge so that it can start recovering.

    By doing nothing, as we are, we are ensuring more lost generations.

  • rate this
    +7

    Comment number 6.

    What we are witnessing is the effects of austerity. We clearly havn't learnt from history and nothing can now prevent the system from collapsing.

  • rate this
    -9

    Comment number 5.

    GH: "The President of the European Central Bank, Mario Draghi, has spoken of "a slow, gradual, but also solid recovery".


    Sure. With solid Italy in need of two TRILLION euros bail-out, having no real growth since 1998.

    That is 10 years BEFORE US banking crisis!

    While China, many euro enthusiasts counted on, is in a big doo-doo, (a drop from 12% to 7%) its economy being EXPORT based.

  • rate this
    -6

    Comment number 4.

    GH: "Both northern and southern Europe are hurting."




    So much for corrupt, inefficient Club Med countries versus highly efficient North European countries with a "Protestant work ethics".


    Btw. How many BILLIONS of euros are still hidden in Caimans , Lichtenstein and Switzerland by German tax evadors?

    [inquiring minds want to know]

  • rate this
    +19

    Comment number 3.

    The Western World is at the start of a Long Depression. (like that of the 1870s)

    This historically ran for a couple of decades till the excess debt in the bubble has contracted and the overpriced property it (still) supports returned to the market at economically sustainable prices.

    It is no accident that Germany isn't doing too badly as it has not really had such an insane property bubble.

  • rate this
    -6

    Comment number 2.

    If Germany is in a recession, what can we expect from less fortunate EZ countries?

    [Inquiring minds want to know]

  • rate this
    -1

    Comment number 1.

    "The heart of the problem, however, is the lack of competitiveness of many southern countries in relation to Germany. The gap cannot be narrowed by devaluation in a monetary union."

    Then perhaps Germany shouldn't be in the monetary union.

 

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