The Global Economy in Turbulent Times

CHAPTER 54 European Union: A Summer of Discontent¹

Brussels is known for its fickle weather. I have written repeatedly on the prospect of the eurozone witnessing more winters so long as politicians (and politics will decide Europe’s fate) avoid addressing its underlying problems. For a little while, the crisis enjoyed a hint of summer when the European Central Bank (ECB) injected more than €1 trillion in short-term money into Europe’s banks. Alas, it has now returned to a wintry gloom as new storm clouds have begun to blow from Spain and Italy. Yields on Spanish bonds have risen dangerously, with Italian ones close behind. Like Spain, Italy is already in recession and will miss its deficit target this year. The big surprise has been the Netherlands, which, too, will miss its fiscal target. So will France and Greece.

A chance for change happened on May 6, 2012. France elected a new president with an alternative economic strategy to the “unexpurgated diet” of austerity, demanding that the European Union (EU) treaty limiting debt be expanded to include measures to stimulate economic growth. Despite many years of belt tightening, growth in Europe has stagnated and a record 11 percent of its labor force is still out of work. In France, 10 percent are unemployed; competitiveness is sliding and labor costs are among the highest in Europe. France has since lost its Aaa rating. On the same day, the Greeks delivered their verdict on the bailout: Nearly 70 percent of the electorate voted ...