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European economy guide: Polarised prospects

Posted by Ram Kumar Shrestha on November 6, 2012


 

  • Source: The Economist

  • Source: Eurostat

  • Source: Eurostat

  • *15-24 year olds

    Source: Eurostat

  • Source: European Commission

  • Source: European Commission

  • Source: European Commission

  • Source: Eurostat

  • *Q1 2012 or latest

    Source: Eurostat

  • Source: European Commission

THE euro crisis flared up in early April after three months of relative calm as banks got a trillion-euro helping hand from the European Central Bank. Spanish bond yields jumped on fears that Spain – the fourth biggest economy in the euro area – might be forced to follow much smaller Greece, Ireland and Portugal in being bailed-out by the rest of the euro area and the IMF. Our interactive graphic (updated May 10th 2012) lays bare the economic and fiscal faultlines that make the crisis so intractable.

Although the whole of the euro area is now in recession, the reverse is much more severe in southern than in northern Europe. Forecasts for 2012 show Greece faring the worst, with GDP falling by over 4%, a crippling blow after already suffering four years of recession. Portugal will also take a knock as national output declines by more than 3%. One reason why investors have been fretting about Spain is that they fear that austerity will prove counter-productive in an economy already on its back. By contrast, Germany and France will manage to grow (though only a little) and the one northern country to take much of a hit will be the Netherlands.

Unemployment shows a similar north-south divide, with the overall jobless rate above 20% in Spain and Greece but only about 6% in Germany. For young people, the disjuncture is even more acute, with rates below 10% in Germany and Austria but above 50% in Spain and Greece and 35% in Portugal. Unemployment this high not only exacts a terrible social cost but also threatens to undermine public support for fiscal retrenchment.

Yet austerity is the harsh medicine being administered to the periphery in an attempt to deal with parlous public finances. Government debt at the end of 2011 was above 100% of GDP in Greece, Ireland, Italy and Portugal and budget deficits have also been most swollen on the southern and western rim of the euro area. By contrast, German government debt was around 80% of GDP and its budget balance was only mildly in the red last year.

European countries outside the single-currency zone like Britain may be counting their blessings for not joining the euro but tight trading and financial links mean that they are still being hurt by the crisis. British growth will again be tepid in 2012 and progress in shrinking a supersized budget deficit will be disappointing. Growth prospects this year are brightest in eastern Europe, with Poland leader of the pack.

@THE ECONOMIST

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