European Depression Deepens

Moneybox
A blog about business and economics.
May 15 2013 9:00 AM

European Depression Continues As GDP Registers Slight First Quarter Decline

eurozone

This won't surprise anyone exactly, but even as Americans continue to grumble about a weaker-than-we'd-like recovery, the European Depression has gotten even worse as GDP fell GDP fell by 0.2 percent in the eurozone and 0.1 percent in the larger 27-member European Union (many but not all non-eurozone EU states are on a de facto or de jure euro peg so the distinction gets a little fuzzy). The chart above is from Eurostat (PDF) and it shows the divergent paths of the United States and the European Union during the post-crisis years.

Keep in mind that this is a chart of growth rates not of levels, so the gap in levels is getting bigger and bigger with each quarter. Despite the weakness in the labor market, the overall output of the American economy is right now larger than it's ever been thanks to growth in the labor force and increases in productivity. In Europe it's just the opposite. The decline in the quantity of employed people has been so severe as to swamp the fact that 2013 technology is superior to 2007 technology, and where employment levels have seen some recovery (the UK and Ireland, e.g.) that's come through the mechanism of reduced productivity.

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Even mighty Germany posted 0.1 percent growth in the first quarter after a 0.7 percent decline in the previous quarter. There is a zero-sum aspect to the eurozone economic dilemma that's received a lot of attention. Portugal and Greece would appreciate transfers of fiscal resources from Germany and Finland. But there is an important mutual aspect to the situation as well. European people do a lot of trade with one another and enjoy a high degree of free movement from one labor market to another. The past twelve months have been much better for Germany, Finland, Austria, and the Netherlands than for Spain, Italy, Portugal, and Greece but they haven't actually been good months in the core. A better approach would serve everyone's interests.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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