Ed Dolan's Econ Blog

The Eurozone’s Woes in One Big Chart

The latest data from Eurostat shows that fewer than half of the eurozone’s economies are now growing. Real GDP in the EZ as a whole was 0.4 percent lower in the first quarter of 2013 than a year earlier. The worst news came from the bloc’s biggest economies: Germany’s growth fell from 0.7 percent Y-o-Y in 2012 to 0.4 percent in Q1 2013. France slipped into negative territory with growth of -0.1 percent.

Prefer to look on the bright side? Tiny Estonia grew by a solid 3 percent, almost enough to offset the headlong dive of Cyprus, which clocked in at -8.7 percent.

Rather let the numbers speak for themselves? Here they are:

8 Responses to “The Eurozone’s Woes in One Big Chart”

ThomasGrennesMay 17th, 2013 at 8:29 pm

Output in the EZ-17 continues to shrink. The decline in the large French economy is noteworthy. It would be interesting to compare the growth of the 10 EU countries that
are not currently using the Euro with the EZ-17. Latvia is growing. Poland, Sweden, etc.?

Fernando BetancorMay 20th, 2013 at 9:38 am

As much as I'm a fan of Mr. Dolan's blog, I don't think this chart sums up much at all; anymore than a chart of the economic performance of all 50 U.S. states (there are some duds there too). There's nothing wrong with saying half the Eurozone is in recession, but it doesn't really lead us to any conclusions either. In fact, one might draw the opposite conclusion than was intended: after all, Greece, Portugal, Italy, Belgium, Finland… all of these markets are moving rapidly in the right direction, with only Slovakia, France, Spain and Cyprus looking like they're still falling off a cliff.

Ed Dolan EdDolanMay 20th, 2013 at 10:49 am

Your point is well taken. You are right to say that there is divergence of performance among US states, but why don't we ever see charts like this for the states? The reason is that divergence of performance among states does not fundamentally undermine the performance of the US economy, so that it doesn't matter much whether all states are growing moderately, or some fast and some slow, as long as the average looks good.

The EZ is not like that because the economies are not as tightly integrated. Yes, they are integrated for trade in goods, but their integration is less for services and labor markets than the US. More importantly, for key elements, like banking resolution and pension systems, they are not integrated at all. The result is that failing economies find it harder to pull back toward the mean, so Spain, France, Italy etc. drag the mean down more strongly than, say, the auto crisis in Michigan dragged down the US economy.

The bottom line: A situation in which half the EZ states are shrinking shows a bigger problem than would a similar US chart. However, you have me thinking, I will have to do the numbers for the US to explore the comparison in more details.

ph. kleinMay 21st, 2013 at 5:01 am

The obsession with growth is just that- an obsession. The importance for "first world" economies lies much more in inovation than in growing. We should measure for example, how fast new enterprises replace old ones as contributores of annual gdp.

Would any economist like to think about a nice formula? We name it after you!

TejasMay 31st, 2013 at 7:30 am

The chart is telling, especially from the view point of monetary policy makers in the EZ. Lacking fiscal integration, federation or union or however, we want to call it, a monetary union cannot function with such a divergence in business cycles. While Fed policy is never equally suitable for all US states simultaneously, there are mechanisms such as labor mobility and fiscal equalization that deal with the problem. In the EZ these mechanisms are missing, meaning that not only does one size not fit all, but one size can actually damage all.

Ed Dolan EdDolanMay 31st, 2013 at 9:23 am

Before the crisis hit, a lot was written about whether business cycles synchronization in a currency area was "endogenous," meaning that after countries joined the EZ, their business cycles would converge. There was some evidence in the early 2000s that that was the case. Logically, it might seem it would be, since interzone trade goes up when countries join, an also because they all have the same monetary policy. That supposition became one of the arguments used that all new members should be required to join the euro. I haven't seen much written on that point since. You may very well be right that a model in which membership requires countries in recession to pursue procyclical austerity policies would have the opposite effect of making business cycles less synchronized.

BWildsJune 13th, 2013 at 8:03 am

The question might be would the rich states in America step up and assume the debts of the poor states in a currency union today. We in America are bound together by a far tighter system then the countries of the euro-zone. While the benefits of a common currency is clear the Euro was built on a foundation of sand. I go into more depth in the post below,