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 Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 42.

    People must understand the true meaning of the word "crisis". Its prime characteristic is a period of extreme uncertainty and instability. Once the underlying causes are identified and addressed then these two ills can be reduced, as has happened. It does NOT mean that there is not a great deal more, perhaps very hard, work to be done.

  • rate this

    Comment number 41.

    33. countryboy

    Like the US dollar, boy it needed a long time to recover. Even when bureaucracy gets in the way they at least get past it.

    Agree large currencies with large bureaucratic process take time, but also note the fundamentals in Europe such as jobs, government spending levels etc... are not healthy

    Until Europe cleans house they will be at risk.

    Yes this is generalising

  • rate this

    Comment number 40.

    No limit to eadiness of our leaders to borrow from the future (from who then can 'afford' unemployment, low benefits, low pay, if lucky perhaps higher tax on much higher incomes). Only the literate leisured will see this argument, and most will not 'see' its implications: we work for the rich, they serve Mammon, all 'paid' by mismanagement for which we pay again, our lives, children, life on Earth

  • rate this

    Comment number 39.

    We are not over the worst of this. Yes it's positive at the moment but come then end of 2015 we are going to be a very bad place.

    What makes me sick is that business leaders are complaining about labours proposed 50p tax rate but these same leaders are also protesting about a rise in the minimum wage. You cannot win with rich people. People are worst off today than 2 years ago.

  • rate this

    Comment number 38.

    I wonder if the German Constitutional Court have the guts to put Germany's welfare before that of the euro.
    If they do then the end of the euro will be insight.
    Why should a currency be allowed to continue when the rules were broken at the start and now needs to be kept alive with massive payouts?

  • rate this

    Comment number 37.

    Once again we, the people, are being fed the 'facts' as the media and powers that control our countries wish us to believe. The truth is that the rich are getting richer much faster than ever before, and the poor are being squeezed from all angles. The ones in the middle are also pressed for cash. In ten years we will all be in the same boat again......but some will be in luxury yachts ....

  • rate this

    Comment number 36.

    This headline is a fascinating comment on the modern mass media.

    The partnership with political parties has become so strong that the "news" is essentially the broadcast of the parties, via the willing medium of "journalists" (people who write down what politicians say and present it to strangers as "truth" via editors).

    After they report fantasy, they wonder how it could be so. Oh, the mystery.

  • rate this

    Comment number 35.

    20. "Given that the UKP was e1.60 at the start,"

    Wrong. The exchange rate started at 1.4. It climbed to 1.6 during the early problems with the exchange rate, then reverted to 1.4. It fell to around 1.05 at the height of the financial crisis, and is now 1.21 and rising steadily.

    That's not evidence of an imminent collapse and the UK pleading to join the euro, however exciting you find that idea.

  • rate this

    Comment number 34.

    I did say to George just the other day that it wasn`t just the UK but also the EU seeing growth and so his policies were not as effective as he would have us believe but he kept insisting he would take the credit for it all.

  • rate this

    Comment number 33.

    the Eurozone is getting better and will eventually return to growth major currencies need more time to adjust and settle minor currencies like sterling can change sometimes dramatically in a short time period

  • rate this

    Comment number 32.

    So, the UK economy is booming - according to the stats. And, if you're in a City job you know it!

    But if you're in a zero-hours, temp, or other low-paid, precarious job, then you can be forgiven for not believing the stats. You're making the money for the "big-boys". And because you have a job (of sorts) your slavery reduces the unemployment total. The EU isn't fixed yet - but could be soon.

  • rate this

    Comment number 31.

    Media does not want to report the eurozone crisis still happening
    because they want to distract the public away from the issue

    By not talking about the eurozone crisis
    its like it simply doesn't exist

    Media chooses what to promote and what to ignore

    In the case of eurozone crisis
    they want to promote the Euro
    so they don't want bad publicity
    because they want that to be your future

  • rate this

    Comment number 30.

    @18. Tony
    'Congratulations Europe, keep going ....one day the UK may join the Euro too.'
    Actually, maybe they should join the Sterling Zone, the UK has been for centuries what the EU, and Eurozone especially, is struggling to be now. Why on earth did we join the EU? So Ted Heath could strut the European stage like a big stupid Peacock?

  • rate this

    Comment number 29.

    There are structural differences within the countries of Europe so, even if EMU begins in a state of convergence, economic shocks, such as crisis of supply of primary products, will lead to imbalances and there will be no mechanism to restore the balance.

    Since there will only be a single interest rate, individual countries that increase their debt will raise interest rates in all other countries

  • rate this

    Comment number 28.

    No one should wish bad things on anyone, that is more than just poor form. Not only that but we need them to buy our goods.

    We should however learn from their failing. Do not live beyond your means, be wary of gov't spending you will get the bill, gold plated pensions are unaffordable and will bite you in the backside, there is no free lunch...

  • rate this

    Comment number 27.

    There was a time I thought joining the Euro might have been good for Britain. I'm so glad not too many people agreed with me at the time. Even the facts in the article disagree with the conclusion that all is rosey.

  • rate this

    Comment number 26.

    The attitude of Eurozone proponents seems to be "If we throw enough good money after bad maybe we can avoid admitting we made a mistake."

    If the Germans ever get tired of underwriting the excesses of less disciplined members the euro will collapse like a house of cards.

  • rate this

    Comment number 25.

    I noticed that the Labour Party poured cold water all over some good news about growth in the UK economy.

    What do expect from a bunch of champaign socialists whose only bit of hard work was removing a wine bottle cork at a 6th form debate on Marxism.

  • rate this

    Comment number 24.

    @17. sevenstargreen
    'Gavin,how could you write this with a straight face? Its total nonsense.'
    Maybe he didn't! :)

  • rate this

    Comment number 23.

    Why is it seen as cool to want poor neighbours? Surely they are more likely to undercut us?


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