GDP growth masks a broken eurozone

European Union

Frankfurt’s stock market has reached a new high, topping 11,000 for the first time.

According to the latest eurozone GDP figures, Germany enjoyed strong GDP growth in the last three months of the year and helped push expansion across the currency bloc to 0.3% for the quarter and 0.9% for the year. In Portugal and Spain, the headline growth figures improved. Even Italy beat analysts’ expectations after it avoided a decline.

So the recovery is real. In fact, say the eurozone’s top policymakers, it’s all going so well the new Greek government should open its eyes and see the warm, golden glow of sunshine appearing on the horizon.

Jens Weidmann, the head of the German central bank, was in London on Thursday evening and joined the chorus of top officials bemoaning those who believe the eurozone is entering a long period of Japan-like stagnation. He urged the Greeks to stop opposing the austerity measures imposed by Brussels and accept wage cuts that have already brought an increase in competitiveness.

No doubt the 0.2% fall in Greek GDP in the fourth quarter will be cast as a temporary blip and a lesson that political uncertainty has unhelpful economic consequences.

Investors also believe the upbeat story, hence the soaring Frankfurt stock market. The promise of a huge stimulus package from the European Central Bank (which Weidmann believes is unnecessary, such is his confidence) and the fall in value of the euro it has precipitated, when combined with the vast European bailouts funds now available, have convinced global investment funds that Europe is a one-way bet.

Look beyond the figures and the chatter of ivory tower policymakers and you will find the story is radically different. Yes, Spain is growing. But its GDP growth in 2014 has made up only around half of its losses in 2013. It is still an economy in need of major investment to get back on its feet. Unemployment remains at disturbingly high levels and the state is held in contempt in many quarters.

Why else would the radical anti-austerity Podemos party be polling ahead of all the established parties at the moment, and its leader be writing in praise of Tsipras (and the Catalonia independence movement still be in full swing)?

Weidmann said the policies of austerity he supported would work slowly but staying the course was important. To him, a lost generation of young workers, who were denied skilled training and out of work for several years, is a matter for individual countries. He cannot see that sovereign states under the current arrangements are denied the funds to invest and improve productivity over the longer term. He cannot see that austerity, if only for this reason, is self-defeating.

Even the Americans, who suffer long-term unemployment at all age levels, worry about Europe’s lost youth. President Obama has made it clear he favours a more lenient attitude to southern Europe from Germany and its supporters in Amsterdam and Helsinki.

Weidmann, like so many policymakers lobbying to keep austerity measures in place, has a version of growth that satisfies investors (or shall we call them German savers) and leaves workers to pick up crumbs from the table. That is the point made by Greek finance minister Yanis Varoufakis, who is arguing for the kind of stable, long-term investment that keeps both investors and workers happy.

But the Greek kitty is bare and Varoufakis knows it. If he wins a bridging loan to keep the country afloat until the autumn he wants Brussels to sanction investment bonds that are eurozone-wide. Not eurobonds that replace and share existing debts. Such sharing is beyond the Germans at the moment.

Powered by article was written by Phillip Inman, economics correspondent, for The Guardian on Friday 13th February 2015 15.09 Europe/London © Guardian News and Media Limited 2010


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