Is Europe’s economy recovering?

By Juan Torres López

The media tell us that the latest data from Eurostat indicate that Europe is out of recession and that the economy is finally recovering, because the statistics recorded positive GDP growth of 0.3% in the euro area during the second quarter.

Obviously the fact that the figures show that there has been growth is positive, but to conclude from this data that the European economy is finally recovering and will return to a path of higher growth and employment, seems to be a big leap.

First it should be noted that the variable referenced to affirm that we are out of recession is GDP, which can lead to great misunderstandings. GDP increases for very different reasons, as well as seasonal reasons, which as soon as they disappear can reveal a negative trend. Therefore, it is one thing for GDP to increase and another is a real improvement in economy. To know whether it is so or not, we need to analyse what is increasing and why it is so. And, particularly, we must assess whether this improvement comes with more jobs, the nature of these jobs, and who is gaining the higher income from this higher growth.

The data that we have seen in recent quarters, and this may be confirmed in this second quarter of alleged recovery, indicate that the activity created is very segmented, linked to specific sectors, which generate very few jobs and those that it does are very precarious, almost indecent, if you follow the terminology of
the International Labour Organization. This means that the income generated will not help an substantial recovery in consumption or investment, which are needed to modify the structural basis of the economy.

Secondly, it is apparent that economic activity increased very little. The figures meant that Europe was technically out of recession (as they were positive) but was so small that it could have been the result of the usual, more or less subtle manipulation that the official statisticians can carry out – and usually perform –
with macroeconomic indicators. We cannot therefore rule out a contraction in GDP in one of the next few quarters. In fact, in the euro area the increase of 0.3% was from the previous quarter but compared to last year GDP fell 0.7% (although it is true that is less than 1.1 % drop in the first quarter). And the forecasts for
the end of 2013 are for a drop of 0.6%.

Third, we must take into account that growth has been very different in different countries. True, it was positive in Germany (0.7%) and France (0.5%), among others, but it is still very negative where the crisis is most acutely felt – in Spain (-0.1 %) and Italy (-0.2%), where it must be added, compared to a year ago, there was a contraction in GDP (1.7%, 2%). Therefore, we must wait to see if it this is a recovery of the entire euro area or only transient in one of the countries [Germany] whose current policies are not exactly aimed at helping others, but to save its own interests, largely contrary those most affected by the crisis of the euro that was designed in its favour.

So to speak of a real recovery in Europe we would have to see a significant improvement in household spending, the use of production capacity of enterprises, access to credit, net exports (ie, the difference between sales and foreign purchases) and the truth is that very little of this is improving substantially, if it is
improving at all. The labour market is deteriorating as a result of the measures that have been taken, increasing wage inequality due to falling nominal wages (which governments also want to continue depressing) and there is nothing to expect access to credit for households and firms will be able improve in thecoming quarters because banks are putting the recovery of their profits ahead of financing to the economy, with the complicity of governments.

Believing that the European economy will recover simply by momentum is a summer dream. The German authorities have stepped on the gas in the country with a view to the elections in September and that, coupled with economic factors such as higher energy consumption, has allowed the GDP to rebound
slightly. The question is paradoxical : if such weak stimuli can lead to an improvement, what could be achieved with a stronger policy of stimulus? The answer may be, even in the context of conventional neoliberal policies, in the United States and Japan. There, the increase in GDP was 1.4% and 0.9% respectively, against a fall of 0.7% in the Eurozone. And that’s without considering if, instead of the rather more heterodox policies – if still neoliberal – in the US and Japan, Europe implemented alternatives designed to support welfare and equity, which history has shown to be the best basis for achieving more progress
and economic development.

15 Aug 2013 E Publico

Translation/edit by Revolting Europe