The eurozone is out of recession

A notable claim in the article by Wolfgang Schäuble last week, that the eurozone is on the road to recovery, was that the eurozone is now of out recession.  This one of those statements that is true but meaningless.

The fundamental problem to be solved never was with the eurozone economy as a whole.  The problem was that individual national governments pursued economic policies that actually made no sense in their own terms.  The constraints of a monetary union removed some of the policy levers that might have used to deal with the consequences of those foolish policies, but there remained plenty of other, better, policy options that could have been followed.  It is not the fault of the euro that these were not done: eurozone member Finland did not have an irresponsible housing boom, while the UK, a eurozone non-member, did.

Unless you are willing to think of the eurozone as an economic entity in its own right, it is meaningless to say that the eurozone is coming out of recession (growth in the last quarter at an annualised rate of 1.2%).  (Data from Haver Analytics in the Economist, and the World Bank.)

It would make as much sense to say that the recession is over among the countries of the world whose names begin with the letter S: the bad news in Spain (-0.4%), Sweden (-0.9%) and Slovenia (-1.3%) is outweighed by the better news from Saudi Arabia (5.1%), Singapore (15.5%), Switzerland (3%)and South Africa 3%).  (Let’s not mention the letter I, where GDP decline in Italy, India and Ireland outweighs growth in Indonesia and Israel.)

If the eurozone is to prosper, it will be because policy-makers treat it as an economic entity and not merely a monetary one. The different countries have more in common than just the same pictures on the banknotes, and their leaders need to acknowledge that the decisions taken in one country have an effect – for good or ill – in the others.  Martin Wolf lays out the case for this in the Financial Times today – read it here.