It appears that what we had been thinking about has become a reality. In a recent article, Eurostat indicates that the Eurozone has retracted by 0.1%, while it rose by 0.1% in the EU27 in the 3rd quarter of 2012. Add this to the previously known -0.4% and -0.2% for the second quarter and we have our very first official recession for the Eurozone, meeting the formal definition of two consecutive quarters with negative GDP growth.
What difference does it make one may ask? If one considers that GDP is a broad measure of the economy's well being, then it says a lot; notably that our economy is getting smaller and smaller with this having tremendous effects on unemployment, consumption, production and investment. As can be seen from the publication, investment has fallen by 0.7% meaning that the next quarter will be even harder if measures are not taken to ensure that investors regain their trust in the economy.
In the meantime, Spiegel has stated that Angela Merkel should tackle the problem of stabilizing Europe against the crisis in 2013. So far, the German government has done nothing to ensure that the crisis will soon be eliminated. All they have achieved until now, is a mountain of austerity measures which have destroyed the productive ability of most of the South's economies and proceeded in the alienation of Germany's views and tactics from the rest of Europe.
A rapid proponent of these views and tactics is the most important German economist (as a result of his position) is nowadays Jens Wiedmann, Bundesbank's President. In a recent interview, (which can be found here) he has stated that:
"The core of the crisis is located in the periphery countries: burgeoning household debt, excessive government debt and insufficient competitiveness, which creates doubts that those countries will be able to manage their debt burden on their own."
Not willing to come off very bad here Jens, but isn't the Greek haircut one of the major causes of the worsening of this situation? And let us remember who designed, proposed and voted for it: the Eurogroup. Let's also assume that every politician in the South was stupid enough to accept this without viewing the consequences it would have to their countries. How about the Bundesbank or the ECB? Out of the thousands of economists employed there not even a voice of disagreement on the had been heard. And now, competitiveness, household and government debt are being blamed.
|Hamburg Bundesbank. Source: Wikimedia Commons. Author: Andreas Praefcke|
I would not argue against the South having these problems. Yet the transition between over-spending and spending would have been easier than the transition between over-spending and no-spending! The point is we did not need such a great recession in the first place. The transition could have been much smoother had the ECB and the Eurogroup taken better measures to tackle the situation. Let us not forget however that the crisis is, first of all a crisis in institutions either in business and finance or in politics.
Nobody can remember all announcements by either the ECB nor the Bundesbank but if my memory serves me right neither of the aforementioned institutions had said anything about competitiveness or household and government debt in the periphery. If they had not known then why are they blaming Member-nations now or if they had known why didn't they warn us about this? It appears that the Bundesbank is merely trying to save its reputation and justify its actions and stance on the whole subject by assigning the blame to someone else.