If the euro zone economy were in truly dire condition, someone might
do something dramatic. In fact, gross domestic product in the third
quarter increased by a paltry 0.2 percent. That is not healthy, but
neither is it bad enough to convince governments or central bankers to
take the risks of a radically new approach to fiscal, monetary or
regulatory policy.
Germany’s GDP grew by 0.1 percent. Without a recession, and with a
low unemployment rate, there will be no big programme to stimulate
demand or boost public investment – and help reduce the country’s trade
surplus. Germans will remain the smug defenders of balanced government
budgets and the adamant opponents of aggressive monetary policy and debt
restructuring.
France reported 0.3 GDP growth. That is not low enough to incite the
unpopular government of President Francois Hollande to undertake more
unpopular labour reforms. If Italy were not bedevilled by political
discord, the 13th consecutive quarterly fall in GDP might spur a grand
plan to streamline regulation and improve education. A 0.1 percent fall
is just not bad enough to stop the bickering.
So the euro zone will continue to stumble along. The authorities will
keep pretending that the 11.5 unemployment rate cannot decline quickly
until growth returns. They will refuse to recognise that with high
prosperity and stable demographics, GDP is unlikely to rise much soon
without a significant direct effort to create new jobs.
The financial system will remain clogged with excessive debts, and by
doubts about the ability of the European Central Bank to come to the
rescue in a national crisis. Mario Draghi, the ECB’s president, will not
consider arguing for government debt relief or for fiscal
burden-sharing.
Of course, crises don’t always bring renewal. In an economic free
fall, the current divisions and paralysis could just become more
entrenched. Bitter nationalists without constructive ideas might try to
break up the single currency zone. Under the circumstances, stagnation
may be the least bad realistic alternative.
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