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The Faux European Recovery and Youth Unemployment

Weeks, J., (2013), “The Faux European Recovery and Youth Unemployment”, Social Europe Journal, 03 December.

Suddenly the media is a buzz with the prospect of a recovery in the euro zone.  After four grim years of contracting GDP, unemployment and falling real wages, we read that country after country has turned the corner. Austerity worked and now we can reap the benefits.

Before we become too overjoyed, it is worth remembering the advice in Galatians 6:7, “for whatsoever a man soweth, that shall he also reap” (ninth book of the New Testament, which also applies to women, I assume).

The three charts below show the quarterly growth rates measured as annual equivalents, for the seven most frequently discussed countries in the context of the euro zone crisis. The statistics start at the beginning of 2010 and go through the third quarter of 2013, except for Ireland with no report for the most recent quarter.

First, consider the euro heavy-weight Germany. The growth rate declined continuously for eight consecutive quarters before recovering to a positive one-half of one percent, followed by 0.6 percent the next quarter. If you call that recovery, you must think that one percent growth causes an economy to overheat. Belief that two quarters of growth this low signals sustained expansion represents the triumph of hope over experience. The interesting aspect of French growth is how closely it mimics Germany’s, though at a lower level.

For the other two large euro countries, Italy and Spain, recovery is very much in the eye of the beholder. Growth rates remain negative, minus 2 percent for Italy and minus 1.2 for Spain. Will the very slight reductions in the rates of decline for the last three quarters continue as a slow creep into positive rates, or do they reflect stagnation of the economy? Whatever answer you give, it is not “recovery”.

The story for the three smaller countries is even less likely to invoke optimism in a rational mind. Each still suffers in an extended contractionary process, Greece (for 15 consecutive quarters), Portugal (eleven) and Ireland (four). The slowing of the rate of decline, especially for Greece and Portugal, may be a good sign, or merely indicate that these economies hit rock-bottom.

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