More perils lie in wait for the eurozone
Divergence in the performance of members of the single currency is a real challenge
In the third quarter of 2016, the eurozone’s aggregate real GDP was a mere 1.8 per cent higher than in the first quarter of 2008. Remarkably, real domestic demand in the eurozone was 1.1 per cent lower in the second quarter of 2016 than it had been in the first quarter of 2008. This extreme weakness of demand should not have happened. It represents a huge failure.
A severe challenge is the divergence in economic performance among the members of the single currency, with deep recessions in a number of member countries (notably Italy) and stagnation in others (notably France). According to the Conference Board, a research group, between 2007 and 2016 real GDP per head at purchasing power parity rose 11 per cent in Germany, barely changed in France, and fell 8 per cent in Spain and 11 per cent in Italy. It will probably take until the end of the decade before Spanish real incomes per head return to their pre-crisis levels. In Italy, this seems unlikely to happen before the mid-2020s. The painful truth is that the eurozone has not only suffered poor overall performance, but has also proved to be a machine for generating economic divergence among members rather than convergence.
Italy has a problematic banking sector, with some €360bn in non-performing loans. Yet this is mainly the result of the deep and prolonged slump. If this continues, still more bad debt is likely to emerge. The inability to agree on how to resolve the banking crisis in ways that meet the constraints of Italian politics on the one hand, and of European rules calling for bail-ins, rather than bailouts, on the other, is now a canker in Italy’s politics.
In the third quarter of 2016, Italy’s aggregate real domestic demand was 10 per cent lower than in the first quarter of 2008, while Spain’s was still close to 11 per cent lower, as it recovered from its post-crisis fall of nearly 19 per cent. Germany’s real demand has risen by 8 per cent over the same period. But its current account surplus has risen from 7 per cent of GDP in 2007 to a forecast of just under 9 per cent in 2016. This is yet another failure in internal eurozone adjustment and makes it too dependent on a large external surplus.
https://www.ft.com/content/b8d5c83a-badf-11e6-8b45-b8b81dd5d080
Divergence in the performance of members of the single currency is a real challenge
In the third quarter of 2016, the eurozone’s aggregate real GDP was a mere 1.8 per cent higher than in the first quarter of 2008. Remarkably, real domestic demand in the eurozone was 1.1 per cent lower in the second quarter of 2016 than it had been in the first quarter of 2008. This extreme weakness of demand should not have happened. It represents a huge failure.
A severe challenge is the divergence in economic performance among the members of the single currency, with deep recessions in a number of member countries (notably Italy) and stagnation in others (notably France). According to the Conference Board, a research group, between 2007 and 2016 real GDP per head at purchasing power parity rose 11 per cent in Germany, barely changed in France, and fell 8 per cent in Spain and 11 per cent in Italy. It will probably take until the end of the decade before Spanish real incomes per head return to their pre-crisis levels. In Italy, this seems unlikely to happen before the mid-2020s. The painful truth is that the eurozone has not only suffered poor overall performance, but has also proved to be a machine for generating economic divergence among members rather than convergence.
Italy has a problematic banking sector, with some €360bn in non-performing loans. Yet this is mainly the result of the deep and prolonged slump. If this continues, still more bad debt is likely to emerge. The inability to agree on how to resolve the banking crisis in ways that meet the constraints of Italian politics on the one hand, and of European rules calling for bail-ins, rather than bailouts, on the other, is now a canker in Italy’s politics.
In the third quarter of 2016, Italy’s aggregate real domestic demand was 10 per cent lower than in the first quarter of 2008, while Spain’s was still close to 11 per cent lower, as it recovered from its post-crisis fall of nearly 19 per cent. Germany’s real demand has risen by 8 per cent over the same period. But its current account surplus has risen from 7 per cent of GDP in 2007 to a forecast of just under 9 per cent in 2016. This is yet another failure in internal eurozone adjustment and makes it too dependent on a large external surplus.
https://www.ft.com/content/b8d5c83a-badf-11e6-8b45-b8b81dd5d080
