More Growth In The Eurozone

I think I’d better rephrase that: more overall growth, but a very mixed bag. In deriving aggregate numbers for the zone, four big economies really matter: Spain, France, Germany and Italy. Now each of these economies actually has different characteristics, so it is not clear what ‘the general picture’ means here.

Spain is the European economy whose current growth characteristic seem to resemble most those of the USA: above average growth (around 3.5% per annum), high dependency on housing and construction for the ‘extra growth’, high and rapidly growing private indebtedness (around 20% y-o-y) and a large current account deficit. Where Spain doesn’t resemble the US is in productivity, which has been more or less negative in recent years.

France is , as I’ve been suggesting, relatively ebullient despite the lack of all those labour reforms, and seems to be ‘on a roll’ at the moment. Driven by internal consumer demand and exports France managed an annualised 2.8% in the third quarter. Ironically, possibly France represents the big-four Eurozone economy with the most sustainable and balanced growth trajectory right now.

The German economy is growing at an unexpectedly high rate, but this extra-spurt is virtually all explained by the rapid increase in exports (helped of course by the fall in the euro).Investment, fuelled by the demand for all those exports, was also up. Meanhwile internal consumer demand is possibly even falling. (Growth in the third quarter was at an annual rate of 2.4% up from an annualised 0.8% in the second quarter).

And Italy, which as I keep mentioning is definitely now the ‘poor sister’ of the eurozone, with an identity crisis about what kind of economy it actually is, and a rapidly ageing population producing huge fiscal pressure. (On this see Morgan Stanley’s Vicenzo Guzzo yesterday). Italian growth actually bucked the trend in the third quarter and was lower than in the second quarter (dropping from a 2.8% annual rate to a 1.2% one).

All of this leaves me with the feeling: ‘Eurozone’ which eurozone?

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “More Growth In The Eurozone

  1. From a July 2001 report on the U.S. economy:
    “Across the nation, the rates of growth ranged from 5.4% in the Mideastern states to -2.2% in the Plains states.”

    How come nobody asks “Which United States?” when confronted which such divergent income data? Seems like the U.S. is an optimal area for getting mentally accommodated to the use of a single currency across both shrinking and growing regions. All I´d ask is that Europeans just conclude they can do it, too, i.e., mentally adapt and carry on.
    I definitely have no idea what you expect. Does Europe have to be more homogeneous, more cohesive and more uniform than the U.S. for you to get on the bandwagon? Do you want to indicate it will take a few more years before you get used to this newfangled Euro thing? Well, the British pound surely is a currency with a long history, so maybe now that Britain no longer outperforms France economically it might not be a bad idea to have Britain come into the fold and raise the average age of Euro predecessor currencies by a significant margin? Then again, you´d probably not even trust an economic union of Britain with the United States, as they have this new money over there that they call the dollar…

    (And, yes, usually a currency´s survival potential is tested early on in its career. The Euro won´t make it without determination on the part of its backers.)

  2. Joerg Wenck,

    The U.S. has labor mobility. If the economy goes sour in one
    state then people will, after a while, move on to somewhere
    else. A significant percentage of the U.S. population relocates
    across state boundaries every year. Whatever the divergences of
    local economics this human mobility has the effect of tying the
    national economy more closely together and rebalancing disequilibriums.

    My understanding of europe is that this is not true. I believe
    that high-status, high-income professionals move from country
    to country fairly freely, but that this is not at all true of
    the great bulk of more ordinary workers.

    Joerg, I’m sure you’ve seen this point made before. But I haven’t
    seen you respond to it.

  3. “Does Europe have to be more homogeneous, more cohesive and more uniform than the U.S. for you to get on the bandwagon?”

    I guess you mean the eurozone and not Europe here, but still, I’d say what has to happen for the euro to work is that the members states have to federate politically, just like the US, and basically I’m in favour of that.

    But absent that, and remember two states just voted down the constitution, it’s my opinion the euro won’t work. That’s what I think, and that’s what I’m sticking to.

  4. “Across the nation, the rates of growth ranged from 5.4% in the Mideastern states to -2.2% in the Plains states.”

    Oh, and by the way those with -2.2% growth rates had approx 40% of the difference from the mean growth transferred to them via the Federal System, with the money coming from those who were growing at 5.4% – obviously this also happens inside most eurozone countries – and this is why you need a single Federated state.

    Basically under this system Spain would be transferring money to Germany, and not vice-versa.

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