An article in Der Spiegel yesterday mentioned that the crisis-hit countries in Europe are becoming more competitive as a result of reduced wage costs and trade imbalances. Specifically, Italy has reduced its trade deficit to almost zero, while Spain and Portugal have reduced their current account deficits by 50% and 40% respectively. Greece has managed to reduce its trade deficit by 54% from 2008 to 2011 and its exports have reached their 2007 level. Meanwhile, Italy has issued new 6-month bonds with their coverage reaching 1.69 times over the amount issued, with interest rates falling to 1.585% compared to 2.454% in their end-of-July issue.
Does this mean that the crisis will be over soon and Europe may breathe the air of growth again? Well... Probably not. I hope I may prove to be wrong, however "One swallow does not a summer make". Maybe GDP will not fall during this quarter, although I highly doubt it. However, people cannot eat GDP or any other macroeconomic indicators for that matter. Job creation is still low in all Southern countries and unemployment is sky high. I have stated it before and I will state it again: this quarter's results will sink Eurozone into recession. Although it will not last for more than a quarter at the EU level, a recession will hopefully make some politicians and policymakers reevaluate their actions on the matter.
This will hopefully bring an end to the current Grexit scenarios as the country's economy will not contract any more over the next years. However, the need for more austerity measures over the next year still exists, in order for the nation to become more competitive.