Thursday

23rd May 2019

Magazine

Big pain for small gain in the eurozone

  • Rehn: No turning back from austerity (Photo: ec.europa.eu)

The past year was better than 2012, at least as far as the eurozone economy is concerned, but not much better.

First, the good news. Europe came out of its double-dip recession, even if the 0.2 percent growth it saw in the first nine months of 2013 was just the tip of a green bud.

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  • Spaniards are five times more likely to be unemployed than Germans or Austrians (Photo: Valentina Pop)

The four countries which started the year under some form of bailout - Greece, Ireland, Portugal and Spain - all made progress. After six straight years of recession, the bloc's pre-eminent crisis country, Greece, may just break even in 2014.

Ireland and Spain both returned to growth and are on the verge of exiting their government and bank bailout programmes - signs that the worst is probably over.

There were also signs that countries in the southern periphery are moving towards an export-led economic model. The average budget deficit is down to around 4 percent, while the eurozone recorded a trade surplus of €109.6 billion with the rest of the world between January and September, up from €50.2 billion last year.

Even if the eurozone recovery is slight, for Olli Rehn, the EU's hawkish economic affairs commissioner, it is proof that austerity works.

But there is plenty of bad news as well.

Cyprus became the latest to receive a bailout in March.

At a fraction above 12 percent, eurozone unemployment is higher than a year ago. So are debt-to-GDP ratios. Access to finance, particularly in the countries most in need of credit, is still as tight as ever for businesses.

Meanwhile, the trade surplus figures carry a sting in the tail.

Most of the extra surplus is the result of falling consumption rather than higher export levels, proving that Europeans are more austere, but not necessarily making and selling much more than before.

If anything, the figures indicate that the economic gap between EU countries is widening. Spaniards, Greeks and Portuguese are now five times more likely to be unemployed than Germans or Austrians.

Mass unemployment, particularly among young Europeans, but also the rapidly growing number of long-term unemployed, is becoming a structural problem.

The year also saw the European Commission wield its new economic governance powers. Finance ministers must now submit their draft budgets to Brussels at the same time as national parliaments.

At a meeting in November, no minister was sent back to the drawing board, but Italy and Spain were the biggest countries to be put on a "watch-list" and warned that their budget plans have left them with little wriggle room.

The EU executive also tweaked the nose of France, with Rehn repeatedly telling Paris to liberalise its labour market and pension system.

Rehn caused even more controversy in November, when he told Germany he would investigate whether the country's trade surplus, worth around 7 percent of its GDP, is hurting other eurozone economies.

All things being equal, the eurozone will continue its slow recovery in 2014. But with no sign that EU decision makers are going to reverse austerity, more pain for small gains will be the order of the day.

This story was originally published in EUobserver's 2013 Europe in Review Magazine.

Click here to read previous editions of Europe in Review magazines.

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