“Eurozone economy grows, business confidence up and unemployment down”

This is the sort of headline we were all expecting, right!

WRONG.

Even after billions of Euros have been injected into the Eurozone economy these past months, the result so far is that the Eurozone economy is stagnant,  business confidence is low and unemployment is unchanged.

Here are the latest statistics:

The economies of the 19 countries that use the euro grew by about 0.3% between April and June, according to official figures.

The first estimate from Eurostat marks a slight slowdown from the 0.4% registered in the first quarter.

The statistics agency also announced that inflation in the eurozone was 0.2% in July, unchanged from June’s figure.

Eleven member states reported deflation in the month, with Cyprus recording the biggest drop at -2.4%. Malta reported the most inflation at 1.2%.

The euro fell sharply at the start of the year, shedding more than 8 percent on a trade-weighted basis between January and March – its weakest quarter ever. The single currency did gain back some ground in the second quarter, rising just over 2 percent, but since the start of the year it is down almost 6 percent.

Exports grew strongly in Germany, helped by the weaker euro. The German economy grew 0.4%, up from 0.3% in the first quarter. Italy’s economy grew 0.2%, slowing from 0.3% the previous quarter.

French finance minister Michel Sapin said his country’s economy was still on track to reach the government’s forecast of 1% growth for the year.

He highlighted strong exports, which grew 1.7% in the quarter, having grown 1.3% in the previous quarter.

Economic reports from other northern euro zone economies gave little reason for optimism even though they have been spared the worst of the currency bloc’s debt crisis.

In the Netherlands, the economy grew by 0.1 percent on the quarter in the April-June period.

In Finland, gross domestic product (GDP) contracted in April-June for the fourth consecutive quarter as the Nordic euro zone member struggles to revive exports to its major markets, Europe and Russia.

Finland’s economy recorded a second quarter of contraction, down 0.4% having recorded negative growth of 0.1% in the first quarter.

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On the face of it, none of these figures point to any great economic problems in the Eurozone. However, the real problems lie underneath these headline statistics.

Drive through Portugal. The country is starting to resemble a third world country. Greece’s economy is already a a basket case and Italy is hovering on the edge. Spain is not much better, struggling along, but not really good.

Then let’s look at the unemployment rates in the EU. In Spain, the unemployment rate is about 22%. Youth unemployment in Spain is about 50%. Only Greece’s unemployment rates are worse than Spain’s in the whole of the EU, and not by much!

Matt O’Brien a reporter for Wokblog on The Washington Post web-site and he covers economic affairs. He wrote this thoughtful little article, a few week’s ago.

“The euro is a disaster even for the countries that do everything right

 by Matt O’Brien (17 July 2015)

The euro might be worse for you than bankruptcy.

That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, basically went bankrupt in 2008.

Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was European Central Bank chief Mario Draghi’s verdict on Thursday.

So what’s happened to them? Well, just your run-of-the-mill bad economic news. It’s only a slight exaggeration to say that Apple has kneecapped Finland’s economy. Its two biggest exports were Nokia phones and paper products, but, as the country’s former prime minister Alex Stubb has said, the iPhone killed the former and the iPad killed the latter. Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn’t have a currency to devalue anymore. It has the euro. So instead it’s had to cut costs by cutting wages, which not only takes longer, but also causes more economic damage since you have to fire people to convince them to take pay cuts. The result has been a recession longer than anything in Finland’s living memory, longer even than its great depression in the early 1990s. It hasn’t helped, of course, that the rules of the euro zone have forced Finland’s government to cut its budget at the same time that all this has been happening.

It’s been a different kind of story in the Netherlands. Its goods are more than competitive abroad—its trade surplus is an absurd 10 percent of economic output—but its domestic spending is a problem. The Netherlands had a huge housing bubble, fueled, in part, by the fact that interest payments are fully tax deductible, that has since deflated some 20 percent. That’s left Dutch households with a bigger debt burden than anyone else in the euro zone. On top of that, there’s been the usual austerity to keep its recovery from being much—or any—of one. Indeed, the Netherlands’ economy was slightly smaller at the end of 2014 than it was at the end of 2007. That’s a lot better than Finland, whose economy has shrunk 5.2 percent during that time, but, as you can see below, it still lags the 1.1 percent growth Iceland has eked out.

Now, it’s hard to do worse than Iceland. It basically turned its entire economy into a hedge fund that collapsed in 2008. Its banks defaulted, its government had to be bailed out, and its currency collapsed 60 percent. Not only that, but, between 2009 and 2014, Iceland did nearly twice as much austerity as the Netherlands and 12 times as much as Finland. And if that wasn’t enough, Iceland’s economic jeremiad also includes high household debt and capital controls that have prevented people from moving money out of the country and dissuaded them from moving it in.

But despite all this, Iceland has still managed to outperform Finland and the Netherlands. How is that possible? Well, it doesn’t have the euro. It has its own currency, the krona. And as much as it hurt Iceland’s people to lose 60 percent of their purchasing power on imported goods when the krona fell that much, it helped Iceland’s economy by making their goods more competitive overseas. That was enough to keep what could have been a depression from turning into anything other than a bad recession.

The euro, though, does the opposite. Countries can’t devalue their currencies or cut interest rates or even spend more when they get into trouble, and so they stay in trouble. All they can do is cut wages, cut spending, and then cut wages some more as penance for whatever economic transgressions they may or may not have committed. The euro straitjacket, in other words, turns ordinary problems into extraordinary ones (Finland) and extraordinary problems into historic ones (Greece). And that can happen whether or not you follow the rules.

The euro is a capricious god, meting out punishment to sinners and saints alike.”