The Eurozone's GDP grew by 0.3% over the past quarter, but that doesn't mean the crisis is over.
A man window shops as a worker changes the price tags of clothing items at a store in Madrid July 31, 2013. (Photo by Susana Vera/Reuters)
The 17 nations which use the Euro as their official currency saw overall growth over the past few months, according to a Wednesday report [PDF] from Eurostat, the official statistical office for the European Union. The gross domestic product of the so-called E17 grew by 0.3% in the second quarter of 2013, leading officials and economic observers to believe the region’s 18-month, double-dip recession may finally be coming to a close.
“Today’s figures, when combined with other recent positive survey data are encouraging and suggest the European economy is gradually gaining momentum,” said Olli Rehn, vice president of the European Commission, in a statement.
The Eurozone’s growth was largely driven by improved performance in the German and French economies, which grew by 0.7% and 0.5%, respectively. Not every country was so lucky; the Spanish and Italian economies continued to shrink, albeit at a slower rate. Cyprus’ GDP dropped by a full 1.4%. And while Eurostat did not include a quarter-by-quarter measurement for the Greek economy, it noted that Greek GDP has shrunk 4.6% in the past year.
“I think it’s too early to say it’s a bottoming out, which would mean that from now on the Eurozone would grow,” said Brunello Rosa of the research firm Roubini Global Economics. “Actually, it’s possible that it’s simply rebounding from a very low level and then plateau for a number of years, or even fall further if certain conditions do not materialize.”
As a result, the crisis is still far from over, particularly for those nations which are still implementing internationally-imposed austerity programs. Just a few days prior to Eurostat’s announcement, Greek unemployment reached a record-breaking 27.6%. Starvation and malnutrition is becoming rampant, particularly among Greek children. In Spain, the International Monetary fund predicts that the unemployment rate will stay above 25% for at least another five years.
The economic crisis has precipitated a political crisis in many of these countries, most notably in Greece, where austerity and unemployment have fueled the emergence of the neo-fascist Golden Dawn party. Yet the International Monetary Fund, European Commission and the European Central Bank—known collectively as the Troika—are likely to continue demanding that periphery countries focus on debt reduction, said Josh Bivens, research and policy director for the Economic Policy Institute.
“The rate of austerity has slowed somewhat…[but] we haven’t reversed direction entirely,” he said. “We don’t have growth promoting policies going on.”
Rehn’s response to the Eurostat numbers seemed to indicate that the European Commission will continue to focus on debt reduction and reforms aimed at weakening labor protections in cash-strapped countries.
“A sustained recovery is now within reach, but only if we persevere on all fronts of our crisis response: keep up the pace of economic reform, regain control over our debt, both public and private, and build the pillars of a genuine economic and monetary union,” said Rehn.
The translation, according to Bivens: “We should keep these reforms going that have nothing to do with the crisis, just because we have a longstanding ideological commitment to them.”
“It’s hard to read that as much of a reversal from the politics of economic austerity,” said Bivens. Instead of asking periphery countries to accept austerity cuts and institute reforms such as the six-day work week, he said, the Troika should focus on implementing a more aggressive monetary policy. In the United States, the Federal Reserve balances dueling mandates to keep inflation low but also stimulate employment; in Europe, the European Central Bank’s only mandate is regarding inflation.
“There’s a perception that the European Central Bank is 100% obsessed with keeping inflation low, and I think breaking that perception would be hugely useful,” said Bivens.