Amidst austerity program s and gloomy worse-than-expected forecasts for the Greek economy, the European economy has caught a break. According to the latest data, the euro zone recovery outstripped that of the US. A 1,7 pct expansion across the 16 euro zone and the 27 EU nations as a whole, compared to the same quarter last year, is the best seen in 4 years.
Germany – of course – was the prime mover behind the growth with a blistering 2.2 pct second quarter growth. Germany has not experienced equivalent number since the 1990 reunification. German Economics Minister Rainer Brüderle expressed considerable optimism: “We are currently experiencing a major upswing,” he said. Growth of far more than 2 percent for 2010 is “entering into the realm of possibility.” The positive news was bolstered by good French and British figures, showing that these economies had expanded by 1,1 pct and 0,6 pct respectively.
Few would deny the figures offer a windfall of sorts. However, there appears to be no consensus on the longer term significance. Weaker euro zone countries, such as Italy, Spain and Greece, had lower than expected growth. This development causes some economist to question whether the European periphery will reap “spillover” benefits from the boom in the European core. E.g. Chris Williamson of Markit economists argues that German exports are benefitting from a weak euro brought about by concerns related to the weaker members of the euro zone. Williamson wonders whether, in the long run, the periphery will benefit from the core or if the periphery will drag the core down. Along these lines, World Bank President Robert Zoellick, speaking in recession-struck Latvia, said that the news for Germany was good, but that “not everyone can export their way out of a crisis.” Latvia, by the way, experienced an 18 pct contraction in 2009.
There is of course the question of the European stimulus packages expiring and the hack and slash method of combating public debt. In spite of American critique of measures aimed at bringing down public spending (it’s a topsy-turvy world!), and the expiration of European stimulus packages, Europe remains determined to follow through on this course of action. How these measures will affect European purse strings is hard to say. Are the austerity measures necessary remedies to the underlying ailments of European economy, or are they pushing us closer to the much feared “double dip”?
