The latest data from the eurozone has been uninspiring. Exports slipped by 2.3% in May and are now barely up on the year. Imports slipped by 2.2%. Germany’s ZEW investment sentiment indicator unexpectedly fell in July, denting hopes for Germany’s recovery. The OECD, a rich country think tank, said eurozone unemployment was on track to reach a fresh record of 12.3% next year. In Greece, Spain and Portugal the figures are set to be 28.4%, 28% and 18.6% respectively. Spain’s leader was embroiled in a slush fund scandal (see page 7), while Italy and France suffered further downgrades by credit-ratings agencies. France has been stripped of its triple-A rating by all three major agencies.
What the commentators said
The latest economic news follows more positive forward-looking surveys, said Deutsche Bank. The upshot is that GDP could creep above the zero line in the third quarter, ending almost two years of recession. But then? The global economy is subdued and much of the periphery is still shrinking fast as austerity continues to bite. And bond yields have crept up with global risk aversion.
Meanwhile, structural reforms to boost medium-term growth have barely begun. The focus now, said Economist.com’s Free Exchange blog, should be on liberalising product markets: “cosy domestic monopolies that impose heavy costs on the trading sectors on which southern Europe is relying for recovery”. Deregulation will boost employment too, as incumbent staff will no longer be able to lock newcomers out.
But reform appears to have stalled in recent months. Michael Hewson of CMC Markets reckons this is because of the European Central Bank’s promise last year to buy southern bonds in unlimited quantities to hold the euro together. “It takes the pressure off these peripheral governments to reform,” he said. Europe looks likely just to “stumble on in a zombie-like” state.
Italy’s government has done virtually nothing since its election. In France, President François Hollande has also made scant progress. He has allowed himself to be squeezed between the left wing of his Socialist Party and populist right-wingers, said Stefan Braendle in Austria’s Der Standard. With the odds of “a robust upswing” looking “vanishingly small”, said Free Exchange, “the risk of social and political mishaps in southern Europe”, and more full-blown crises, is rising.