On July 23, French Finance Minister Pierre Moscovici said that France's recession ended in the second quarter of 2013 as the French economy grew by 0.2 percent. It had contracted the three previous quarters. Also on July 23, the Bank of Spain announced that the Spanish economy is still contracting, albeit less severely. In the second quarter of 2013, the economy contracted by only 0.1 percent after having contracted by 0.5 percent in the first quarter. Finally, a survey conducted by Nielsen showed strong consumer confidence in Germany and the United Kingdom and a growing confidence in Greece. Although consumer confidence in Greece was the fifth lowest in the European Union, it rose seven points between the first and the second quarters of the year — the biggest increase in the world.
Then on July 24, business media heralded the end of recession in the eurozone after the Purchasing Manager's Index, an economic indicator made from monthly surveys of private sector companies, rose from 48.7 points in June to 50.4 points in July (results higher than 50 points mean an increase in economic activity). That same day, a survey by the European Central Bank highlighted that credit conditions in the eurozone are still tightening, but they are expected to do so at a slower rate in the coming months.
These figures are interesting for several reasons. First, gross domestic product is an extremely imprecise indicator of economic activity. In fact, there is no substantial difference between a 0.1 percent contraction and a 0.2 percent increase in GDP. Subtle changes in GDP may be a welcome reprieve for France and Spain, but the countries' economic realities did not change appreciably between the first two quarters of 2013. In this context, GDP statistics are only useful politically because they allow governments to say that their economies are faring better to mute the criticism from the opposition and to send positive messages to financial markets.
In any case, the European crisis appears to be stabilizing somewhat — economies will shrink in some quarters and grow in others, but most countries in Europe will remain in a fragile economic and political situation. Despite the promises of sustained economic activity by national governments, we expect weak economic growth to be a prominent trend in Western Europe.
In fact, this trend is hardly new in the eurozone periphery. From the mid-19th century and the mid- to late-20th century, weak economic performance, high levels of unemployment and significant rates of emigration were common features in countries such as Spain, Portugal and Greece. For most countries in the eurozone periphery, the economic boom that took place between the mid-1990s and the mid-2000s is more the exception than the norm.
But what differentiates the eurozone periphery's current crisis is that 20- and 30-year-olds were born and raised in the context of their countries' EU membership. These people enjoy and appreciate the benefits of EU membership, such as the free movement of people within the Continent, and are interested in preserving them. But this same generation is less prepared than their parents to deal with a severe economic downturn.
Europe in Transition
The main challenge for the stability of the European Union comes from core countries, where severe economic downturns traditionally occur less frequently. Their residents are relatively unaccustomed to economic decay. Eurostat data shows that unemployment is higher in absolute terms in Greece (26.6 percent), Spain (26.5 percent) and Portugal (17.6 percent), but it is growing at a faster pace in some northern countries.
In the Netherlands, unemployment rose from 5 percent in the first quarter of 2012 to 6.2 percent in the first quarter of 2013 — a 24 percent increase. During that same period, Greece's unemployment rate grew by only 21 percent, Portugal's grew by only 18 percent, and Spain's grew by only 11 percent. In France, unemployment is at 10.8 percent, in line with the eurozone average, but has grown steadily since the beginning of the crisis.
Those in the eurozone periphery understand that their future is tied to the rest of the European Union to some degree. But in Europe's core there is a perception that being less integrated with Europe could solve some of the current problems. This explains why voters in the periphery favor left-wing parties that promise a larger welfare state within the EU framework, while voters in the core increasingly support nationalist parties that promise to reduce their ties with the European Union.
Large segments of the EU member states' populations still believe that the European Union could return to its pre-crisis prosperity. According to a EU-wide survey published July 23, more than two-thirds of the German, Dutch and French populations support the euro, and 49 percent of the population in the European Union is "optimistic" about the regional bloc's future. However, there are also marked differences between the north and the south — support for the common currency is around or below 50 percent in Spain, Portugal and Cyprus, all of which recently received bailouts. In addition, 55 percent of Europeans believe that the worst of the crisis is still to come. This is a 7 percent drop since 2012 — reinforcing the general sentiment that things are getting worse but not as fast as before.
The statistics and surveys released July 23 and July 24 suggest that the crisis is stabilizing in Europe, and economic decline is slowing overall. This is the result of several factors, such as the moderate success of some of the reforms applied in the past two years, a generalized easing of fiscal consolidation policies in Europe and stimulus policies by the European Central Bank. But record high unemployment levels in the periphery, rising unemployment in core countries, a lack of credit to small- and medium-sized companies, and varying views regarding the future of the EU suggest that the crisis is far from over. While there is no reason for extreme pessimism in the short term, neither is there reason for extreme optimism.
