Titanic-Style Problems for Euro Zone

by Irwin Stelzer

Wall Street Journal
August 2, 2010

On the surface, things are looking up in the euro economy. But remember, economies in some ways resemble icebergs. And seven-eighths of icebergs —the lethal, unseen part—are below the surface.

No denying that the view from the surface is pleasant. Euro zone economic sentiment, reports the European Commission, hit a 28-month high in July. Little wonder: Markit reports that the area's retail sales rose in July for the second consecutive month and at the fastest rate in two years, driving employment in that sector up for the first time since March 2008. The area's output picked up in both the service and manufacturing sectors, with manufacturing leading the way.

As usual, Germany is the locomotive. With its consumers holding to their historical stinginess, exports remain the main driver, causing unemployment in July to drop for the 13th consecutive month. At 7.6% it is lower than it has been since November 2008. In fact, the 20,000 drop in unemployment brought the total to just about where it was before the recession hit.

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