In short the stagnant and declining situation in the UK, Italy and Spain is enough to essentially entirely offset recovery in Germany and France.
Conclusions The overall conclusion is clear. The Eurozone crisis was predictable, I noted 15 years ago in ‘Fundamental Economic Implications of a Single European Currency’ that: ‘‘The process that would unfold with the creation of a single currency by this method may be predicted with certainty. Substantial parts of the EU… will be pushed into severe recession if they join. There will be sharply deepening regional imbalances and inequalities. The malignant expressions of economic depression — unemployment, poverty, collapse of the welfare system, weakening of trade unions, racism, chauvinism, crime — will multiply. The end will be either an economic tragedy, or the deepest crisis in the history of the EU, or more probably both.’This analysis has clearly been vindicated.
The EU bailout programs may therefore be correctly characterized as having failed.
Widespread downturn in Eastern Europe An equally severe, although less reported, decline in European production than in the bail-out countries has taken place in the Baltic republics – Estonia, Latvia and Lithuania The downturn in Latvia 16.6% is the worst for any European country while those in Estonia 8.6 % and Lithuania 9.0 % are only slightly better than Greece 9.9 % and Ireland 11.6 %
But it would, nevertheless, as seen above, be wrong to conclude that the exclusive core of the problems in Europe’s economy is the Euro or to see the situation exclusively in terms of a ‘Germany and periphery’ situation.
This crisis in the Baltic Republics, incidentally, as with the different case of the UK, shows that the European crisis spreads to far more than Eurozone – only Estonia of the Baltic republics is a Eurozone member.
The greatest drag on economic growth in Europe is its ‘stagnant middle’ the UK, Italy and Spain. These three economies together are equivalent in size to Germany and France.
In addition to the Baltic Republics economic downturn has continued in most of Eastern Europe with only Poland and Slovakia having recovered to pre-crisis levels of output.
If Germany and France are supposed to provide the ‘growth engine’ of Europe these three economies may be conceived of as currently providing its ‘drag factor’.
Recovery Economies The trends above leave only two large European economies, Germany and France, together with a number of medium sized ones Netherlands, Switzerland, Belgium, and Poland having undergone serious economic recovery. However, although Germany and France are the 1st and 2nd largest economies in the EU their combined GDP, at 36.2 % of the EU total, is only slightly greater than the 34.7 % of the UK, Italy and Spain combined.
Unless the situation within the UK, Italy, and Spain can be resolved it is most unlikely that overcoming the economic problems in Greece will relaunch substantial European growth. For this reason, whatever occurs in Greece, the European crisis is going to be prolonged and other parts of the world economy must both take this into account and understand the more powerful factors in European economic stagnation.
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