Monday, April 30, 2012

Eurozone Deteriorates

Preliminary statistics last week showed the UK in an official recession. GDP statistics may be slightly revised upwards at a later date. But, at this stage even very low economic growth is not good. It will lead to continued unemployment and persistently lower living standards. By comparison the recovery from the Great Depression was much faster!

However, though things may be bad in the UK, in southern Europe it is a real depression. 

Statistics from Greece, showed retail sales fell by 13.0% in February, in volume terms…” - It's hard to over-emphasis how dramatic this fall of 13% is.

Spain also entered into double dip recession with 0.3% fall in GDP

In main blog of week I looked at likelihood of a Eurozone break-up. - Will Eurozone break up?

There are two fundamental problems

1. Imbalances in Eurozone - different competitiveness causing structural current account deficits and lower growth in overvalued south.
eurozone current account 

2. Austerity isn't Working


source: Krugman. Link between changes in austerity measures and GDP

The main policy of Europe has been to try and implement radical budget targets which have caused unsustainable levels of unemployment. Deflationary fiscal policy has been deflationary.

EU Unemployment

Spanish unemployment hit 24.4% last Friday (April 2012)

This is the big political issue for Europe - what can they do to reduce excessive unemployment?

Will Eurozone break up?

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