More of the same
If the euro zone economy were in truly dire condition, someone might do something dramatic. In fact, gross domestic product in the third quarter increased by a paltry 0.2 percent. That is not healthy, but neither is it bad enough to convince governments or central bankers to take the risks of a radically new approach to fiscal, monetary or regulatory policy.
Germany’s GDP grew by 0.1 percent. Without a recession, and with a low unemployment rate, there will be no big programme to stimulate demand or boost public investment – and help reduce the country’s trade surplus. Germans will remain the smug defenders of balanced government budgets and the adamant opponents of aggressive monetary policy and debt restructuring.
France reported 0.3 GDP growth. That is not low enough to incite the unpopular government of President Francois Hollande to undertake more unpopular labour reforms. If Italy were not bedevilled by political discord, the 13th consecutive quarterly fall in GDP might spur a grand plan to streamline regulation and improve education. A 0.1 percent fall is just not bad enough to stop the bickering.
So the euro zone will continue to stumble along. The authorities will keep pretending that the 11.5 unemployment rate cannot decline quickly until growth returns. They will refuse to recognise that with high prosperity and stable demographics, GDP is unlikely to rise much soon without a significant direct effort to create new jobs.
The financial system will remain clogged with excessive debts, and by doubts about the ability of the European Central Bank to come to the rescue in a national crisis. Mario Draghi, the ECB’s president, will not consider arguing for government debt relief or for fiscal burden-sharing.
Of course, crises don’t always bring renewal. In an economic free fall, the current divisions and paralysis could just become more entrenched. Bitter nationalists without constructive ideas might try to break up the single currency zone. Under the circumstances, stagnation may be the least bad realistic alternative.