Whatever happened to the eurozone crisis?

 
Spain's Economy Minister Luis de Guindos (left) and International Monetary Fund Managing Director Christine Lagarde (centre), with German Finance Minister Wolfgang Schauble The IMF wants the eurozone to get its banking union in place soon to help revive growth

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To many people the eurozone crisis has disappeared. It is off the front pages. It has certainly left the TV screens. I have heard prime ministers and presidents declare the crisis "over".

The Anglo-Saxon jeremiads have been proved wrong. There have been no exits from the single currency and significant steps have been taken to fix the design flaws.

Casting around it is not difficult to find "green shoots". Only on Tuesday, Spain, with its chronic unemployment, upgraded its growth forecast for 2014 to nearly 1%.

The Republic of Ireland, having almost been bankrupted by its banks, has felt strong enough to leave the safety of the bailout programme. Portugal may soon follow.

Mixed signals

Greece, which has seen its economy decline by 25% in five years, is now running a primary budget surplus, excluding interest payments.

Protest outside the Greek parliament (22 January 2014) Greece is months behind in negotiations with its creditors and a third bailout is likely

We learnt on Tuesday that the surplus might just reach 1bn euros (£819m; $1.4bn).

Borrowing costs for the most vulnerable countries have fallen to levels not seen since 2010.

Italy's two-year borrowing costs have fallen to their lowest level since the launch of the euro. Tremors in the emerging markets have scarcely ruffled Europe - so far.

And so optimists have emerged among us - those who follow the statistical twists and turns of the single currency. They have seen the glass and judged it to be half-full.

It needs to be said at the outset that Europe is still enjoying the "Draghi effect": the reassurance given by the President of the European Central Bank (ECB) that he would do "whatever it takes" to defend the euro - and no-one seems willing to bet against the ECB.

And yet it is a curious kind of recovery, full of faults and fissures.

Take Spain. Early in the crisis it enthusiastically embraced structural reforms, making it easier to hire and fire workers.

Productivity has improved strongly. Its labour costs have fallen and its exports have surged.

And yet! House prices are still falling. Bad loans are still rising, as is public debt. There are signs that unemployment is beginning to fall, but even if Spain achieves growth of 1% it will have little impact on the 5.9 million people out of work.

Future growth will have to depend on exports and investment but not on domestic demand.

Patience running out

Take France. Its Finance Minister Pierre Moscovici boldly declared recently that "France is modernising and reforming".

He took a swipe at his country's critics and insisted France "deserves the world's trust".

After much badgering from its neighbour across the Rhine, President Hollande has pledged to cut spending by 50bn euros (£41bn; $68.3bn) by 2017, on top of the 15bn-euro cuts already announced for 2014.

His reforms will take time and in France patience is running out. This week France saw the numbers out of work rise above 3.3 million people. The promise that unemployment would fall by the end of 2013 lies unfulfilled.

Take Italy. It is spluttering its way out of recession. Its economy has not really grown since the middle of 2011. It has now embarked on a privatisation drive which is expected to raise 12bn euros over the next two years.

These sales are driven by the need to reduce Italy's public debt. It is forecast to reach 133% of GDP this year. It is a reminder that this was once defined as a sovereign debt crisis, yet in country after country debt is higher today than it was in 2009.

Engineer in a Berlin factory Germany is motoring, but many of its eurozone partners are still struggling
Prosperity or stagnation?

And then there is Greece. Yes it has eked out a primary budget surplus, but Greece is not in rude financial health. There is a funding gap this year of probably 4bn euros. Some note that it is beginning to miss its fiscal and structural targets.

Negotiations with its creditors are months behind schedule. A third bailout is likely. Some believe - like the IMF - that growth will only emerge if a major chunk of its debt is written off. Greece is unfinished business.

And for some of these countries falling inflation makes it more difficult to meet public debt targets. That puts pressure on weaker economies to cut costs further, just to compete with countries like Germany.

To politicians and officials the key question hanging over the euro was its survival. For the moment that question has been laid to rest.

But to the public there is perhaps a more important question - does the single currency deliver prosperity or stagnation?

On Tuesday EU Economics Commissioner Olli Rehn declared that "consumer confidence has reached its highest level since January 2008".

He foresees continuing recovery. And yet doubts persist that this is a flawed recovery.

It was perhaps best summed up last week by Total's chief executive Christophe de Margerie, who opined that "the continent needs to start from scratch in terms of economic policy to overcome the evils of high unemployment and stagnant growth".

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    0

    Comment number 442.

    #438 purple

    GH --yes TWTWTW

    Does Norway have an extradition treaty with the US ?

  • rate this
    0

    Comment number 441.

    I do wish that the Commision would hurry up to point out that there is little to be done in reality and in Somerset, with the wrong type of rain.

  • rate this
    0

    Comment number 440.

    422 dave

    "We have a system where they have to have 2 parliaments"

    At least it's an elected parliament. Cheap compared to our unelected 'institutions' like the lords and royals
    =
    .
    "finance audits that have failed for the last 10 years"


    EU accounts have been signed off but with qualification (error over 2%)

    UK accounts have never been signed off to that standard

  • rate this
    +2

    Comment number 439.

    390 EU

    "In WWI, 100 thousand Czechs fought against the central powers to free their country from unwanted union"

    Didn't do them much good. They got the Russians instead



    432 QOT

    US firearm murder rate is 19.5 times higher than the 22 next most populous, high-income countries in the world. And a staggering 80 per cent of firearm deaths in the combined 23 countries occur in America

  • rate this
    +1

    Comment number 438.

    It's Rowan & martin laugh in time. Remember Goldy Hawn, anyone?

    http://www.zerohedge.com/news/2014-01-29/edward-snowden-nominated-nobel-peace-prize

    Snowden nominated for Nobel Peace Prize.........

  • rate this
    0

    Comment number 437.

    ´'Give disenfranchised expats the vote' - EU´

    "Under current rules, British citizens lose the vote in the UK if they have lived abroad for 15 years. "

    http://www.thelocal.de/20140129/eu-give-disenfranchised-expats-the-vote

  • rate this
    +2

    Comment number 436.

    384 EU

    "The British people probably would if we were given the referendum to which we are entitled"

    You're insulting their intelligence. They voted Conservative knowing their pro EU stance.



    426 QOT

    "Could you explain that one --East German Bavarian elves ?"

    Yodelling in their lederhosen and dirndls? I know there is a Saxon Switzerland but hopefully no Heidis -:)

  • rate this
    +1

    Comment number 435.

    It is interesting to note how, for far too many readers believe that, if the EU has shown to have made the right choices after all, Gavin Hewitt must be making it up.

    So: could these readers explain how good things done by the EU should be reported? Or, do we need to conclude that we should all wear blinkers, follow Farage & Co, and never look in that direction at all?

  • rate this
    -1

    Comment number 434.

    #433 Juan

    "What about an HYS for the "gagging" law and for Scotland wanting to continue using the £pound after independence?"

    For Mr Hewitt-- the UK is not a part of Europe and this is a European blog.

  • rate this
    +2

    Comment number 433.

    What about an HYS for the "gagging" law and for Scotland wanting to continue using the £pound after independence?

    I guess they are too important for mere mortals like us to comment on.!!

  • rate this
    +4

    Comment number 432.

    #419 sieu

    " It also tries to fully utilize its vast human resources"

    5% of the world’s population, the U.S. has 25% of the world’s prison population - the world’s largest jailer.

    Since 1970, prison population has risen 700%.

    One in 99 adults are behind bars in the U.S.

    One in 31 adults are under some form of correctional control, counting prison, jail, parole and probation populations.

  • rate this
    0

    Comment number 431.

    There is no doubt the Euro will survive. When those in charge have endless amounts of other people's money to spend defending it, the result is not in doubt.

    A triumph for the Euro elite (no doubt a lavish banquet soon) but a disaster for the EU's citizens. Still, what do they matter to the elite?

  • rate this
    0

    Comment number 430.

    Now Greek farmers are demonstrating again --probably a VAT avoidance problem.

    "Unionists are demanding that farmers with an annual turnover of up to 40,000 euros should be exempt from a regulation forcing them to keep account books.

    Also, they are asking for an increase in their tax-free threshold and for measures to help them settle overdue debts."

    --sounds fishy.

  • rate this
    +3

    Comment number 429.

    419 sieuarlu
    -------------
    Thats hard to believe! Did this just all of a sudden happen? The US is in a mess - face it. Alert Detroit.

  • rate this
    +2

    Comment number 428.

    At least when Europe has growth it will be sounder than the credit consumer based growth in the UK. Our economy in the UK is going to fail because one can earn more money investing in property or get rich quick hedge funds than manufacturing industries. Britain is now a nation based on an economic spivery not on what we once dominated the world on engineering.

  • rate this
    +1

    Comment number 427.

    The sooner we are out of the corrupt socialist experiment that is the (hated) eu,the better.

  • rate this
    0

    Comment number 426.

    #423 dmt

    " It is not all clean streets and fine gentlemen singing about bavarian elves."

    --Bavarian elves ?

    Could you explain that one --East German Bavarian elves ?

  • rate this
    +2

    Comment number 425.

    419 sieuarlu with 17 trillion debt,your leaders are just as stupid as ours...

  • rate this
    +1

    Comment number 424.

    The fact is our future lie in Europe.
    The US don,t care about us, we are too small for them to have any meaningful trade.
    Forget the commonwealth countries, they are too concerned with their own growth.
    Half of our industry is here only because they have access to European markets.
    Quit Europe and we would lose all those jobs.

  • rate this
    0

    Comment number 423.

    East germany has a very large population who do not have jobs and an even larger population who have low paid jobs. It is not all clean streets and fine gentlemen singing about bavarian elves.

    For whatever reason, perhaps the contrast of the rest of the EU, the popular conception of germany is that it is a rich, prosperous, unified nation, far from discontent. The engine that will save the EU.

 

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