No way out for Eurozone’s stagnating economy

Meeting in the Champs Elysees Presidential Pallas between François Hollande, President of the French Republic, and José Manuel Barroso, President of the European Commission. (EC Audiovisual Services, 07/01/2014).

Meeting in the Champs Elysees Presidential Pallas between François Hollande, President of the French Republic, and José Manuel Barroso, President of the European Commission. (EC Audiovisual Services, 07/01/2014).

This morning the German Federal Statistical Office issued a Press release revealing that the country grew by a mere 0.4% last year. This is almost half than the 0.7% GDP increase that Germany recorded in 2012. Along the same line of developments, Eurostat, the EU statistical office, published a Press release estimating that the Eurozone economy grew by a barely positive 0.1% during the third quarter of 2013 compared to the previous quarter. During the second quarter of last year euro area GDP grew by 0.3% on a q/q basis.

On a yearly basis, GDP fell by 0.3% in the euro area and grew by 0.2 % in the EU-28 in the third quarter of 2013, after -0.6% and -0.1% respectively in the previous quarter. Obviously, the weak growth tendency observed half-way last year is losing its feeble momentum. The President of the European Central Bank Mario Draghi has repeatedly noted that.

Hollande disappointed Europe

The problem is that France, the second largest Eurozone economy, didn’t manage to grow at all during the third quarter of 2013 and actually recorded a loss of 0.1% of GDP. Unfortunately, President Francois Hollande, didn’t manage to convince Europe and the world that his initiative to ‘relaunch the French economy’ will change the negative business climate prevailing in his country.

In a Press conference staged yesterday in the Champs Elysees Presidential Pallas, Hollande ignored questions about his alleged affair with a French actress and focused on what he called the ‘relaunch’ of the economy. He initially announced reductions in government budget deficits of the order of €50 billion during the next two years, but he failed to identify how this target will be realised. He vaguely spoke of reshuffles of government spending and revenues accounts.

Stagnation to continue

This was a real disappointment for the crisis stricken countries of Eurozone. Euro area member states in the South were expecting from Paris a concrete alternative policy line, to counter the austere Teutonic proposal. What Hollande had to offer instead was a German inspired policy target of spending cuts, which was voided though some minutes later in a French surrealistic way. The unspoken aim to also relaunch his Presidency remained in the sphere of intentions.

In any case, Eurozone economy seems caught in stagnation trap, without a visible way out. Coming back to Eurostat’s announcements it found that, “During the third quarter of 2013, household final consumption expenditure rose by 0.1 % in the euro area (after 0.1% in the previous quarter). Gross fixed capital formation increased by 0.5% (after 0.3% )”. At the same time, exports rose by 0.3% and imports increased by 1.2%.

  Eurostat table. Growth rates for third quarter 2013, in % q/q

graph15

There is no doubt that Eurozone is always plagued by the recession in most of its member states. The same is true for Germany. Exports cannot make it up for the quite weak internal demand for consumption. Without a major change in the main policy lines which impose severe austerity, the current conjuncture will continue to prevail. France proves incapable of changing the political and economic climate in Europe. The participation of the German socialists in the new grand coalition federal government in Berlin is not going to change the basics of this recipe.

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