Bill Jamieson Where’s the recovery?

COMMENT

BILLJAMIESON | Executive Editor of The Scotsman

Where’s the recovery?

The eurozone has a bigger problem than just Greece.

Whatever the outcome of the latest stand-off between Greece, the European Union, the European Central Bank and the IMF, it almost beggars belief that this crisis has now dragged on into its seventh year.

When you consider one of the oft-cited benefits of the European single currency was that it would bring greater economic policy cohesion and cooperation, a crisis of the type that has engulfed Greece was just not supposed to happen, never mind drag on for seven years.

That it has persisted this long is itself an indictment of the institutions and structures of the euro currency and the manifest failure of the central bank and the authorities in Brussels to have achieved anything like a reconciliation.

With every twist and turn has come fresh anxiety, not only about the fate of the Greek economy but also the survival of the euro itself. Each new stand-off is seen as a potential trigger for similar confrontations elsewhere in the eurozone and thus a threat to the single currency as a whole.

We have lost count of all the ‘crisis summits’, the ‘final deadlines’, ‘the last minute compromises’.

Greece has crashed and burned its way through so many ‘last chance’ moments that it is now hard to imagine a meeting of EU leaders where Greece is not at or near the top of the list for discussion.

After each one some fudged compromise has been arrived at, a ‘vital breathing space’ conceded and a new deadline grudgingly agreed.

Nothing has really been resolved but the result is hailed as a success – and a communique issued that leaves most of us little the wiser as to what actually has been agreed. Until the next time.

Feeble growth

And while this danse macabre continues, we almost lose sight of the bigger crisis that continues to grip the collective economy of the eurozone – the signal and continuing failure to mount a convincing recovery from the 2009–2010 recession, let alone achieve an overall step change in economic growth – another founding claim of the single currency.

We’ve almost become inured to the low growth out-turns for the eurozone. Indeed, even the smallest improvement in the pulse rate is hailed as a major step forward.

EU statistics for the first quarter of 2015 showed combined growth across the economies of the eurozone at 0.4 per cent – hailed as a marked improvement on the 0.3 per cent pace of the previous quarter and the fastest pace for two years.

However, Greece is back in recession, Germany has had a growth stumble and the first quarter outcome disappointed analysts who had been predicting better. On an annualised basis, the eurozone economy grew by just 1.6 per cent.

If this is the best the single currency can do after the ECB’s resort to monetary pump priming and the sharp fall in the price of oil, one struggles to imagine what combination of circumstances would be needed to take growth up to 2.5 per cent and beyond.

Little wonder that commentators continue to fret about the arrival of secular stagnation. There’s now an uncomfortable word for it – predictably Greek. It’s called hysteresis.

This refers to the possibility that after long periods of low growth and high unemployment, an economy loses its capacity to recover to more ‘normal’ levels. The Financial Times likened it to placing a weight on a metal spring. The spring will stretch, but then return to its original shape when the weight is removed. But if the weight is too heavy, the metal will forever lose its spring.

Thus, when an economy has had a long period of recession, high unemployment and lack of investment, the condition becomes permanent. People are out of work for such a long period that they lose skills while companies fail to invest in training their staff. This destroys an economy’s ability to grow permanently, even when demand recovers.

For the record, the latest Eurostat figures show unemployment across the eurozone at 11.3 per cent – 18.2 million people. Rates vary from 10.1 per cent in France to 12.5 per cent in Italy to 14.9 per cent in Portugal and 25.2 per cent in Spain. In Greece the figure is 27.3 per cent.

While these rates are down on the levels of a few years ago they are high by Western advanced economy standards – and have been so for many years.

Far from EU policy having helped alleviate matters, intrusive and extensive labour market regulation has made them worse. It has fussed over smaller matters to make the big problem – joblessness – even worse.

It is a baleful reminder that however headline-hogging the Greek crisis might be, the bigger one is the recurring economic failure of the eurozone itself – and no sign of any stepchange improvement on the horizon. n

With every twist and turn has come fresh anxiety, not only about the fate of the Greek economy but also the survival of the euro itself. Each new stand-off is seen as a potential trigger for similar confrontations elsewhere in the eurozone.