Financial Times
September 24, 2013
Angela Merkel’s remarkable election result confirms her position as the dominant politician in Germany and so also in Europe. It is assumed she will get the eurozone she wants: Germany writ large. That may prove right. Alas, if she does, it is going to be a deeply depressing spectacle.
Wolfgang Schäuble, Germany’s finance minister, laid out the view on which Berlin’s current policy is based, with sobering clarity, in the Financial Times last week. The doomsayers, he argued were wrong. Instead, “the world should rejoice at the positive economic signals the eurozone is sending almost continuously these days”. If depressions and mass unemployment are a success, then adjustment in the eurozone is indeed a triumph. Mr Schäuble accuses his critics of living in a “parallel universe”. I am happy to do so rather than live in his.
Ambrose Evans-Pritchard of The Telegraph has provided a colourful rejoinder. Kevin O’Rourke of Oxford and Alan Taylor of the University of California, Davis, offered a sober assessment, concluding that a break-up is not unthinkable.
So where is the eurozone? Its unemployment is 12 per cent. Its gross domestic product in the second quarter was 3 per cent below its pre-crisis peak and 13 per cent below its pre-crisis trend (see chart). In the most recent quarter, Spain’s GDP was 7.5 per cent below its pre-crisis peak; Portugal’s, 7.6 per cent; Ireland’s, 8.4 per cent; Italy’s, 8.8 per cent; and Greece’s, 23.4 per cent. None of these countries is enjoying a strong recovery. The latest unemployment rate is 12 per cent in Italy; 13.8 per cent in Ireland; 16.5 per cent in Portugal; 26.3 per cent in Spain; and 27.9 per cent in Greece. These would be higher without emigration. Ireland’s plight is a warning: it has long since restored its competitiveness and is running a large current account surplus. Yet its GDP has stagnated for four years.
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