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Monday, August 16, 2010

The Same Old Story?


The eurozone is experiencing some economic growth again. Data published the other day by Eurostat shows that eurozone GDP expanded by 1% in the second quarter of 2010 from the first quarter, and by a flattering 1.7% in comparison with the second quarter of 2009.

This is good news for a range of different reasons. But behind these figures loom a familiar problem: the eurozone's highest growth rate in more than three years comes with huge competitiveness gaps between stronger and weaker eurozone economies. The contrast between the impressive 2.2% expansion experienced by the German economy and - for example - the meagre 0.2% growth registered in Spain and Portugal is concerning, to say the least. Not to speak of the 1.5% contraction in Greek GDP over the same time period.

The recent sovereign debt crisis has shown that the single currency has failed to deliver on one of its major promises - boosting economic convergence and reducing gaps in competitiveness between eurozone members. Even when growing, one of the eurozone's deepest structural problems - its asymmetry - continues to smoulder beneath an aggregate surface.

As Ambrose Evans-Pritchard points out,
What in fact occurred is that Germany surged ahead with an undervalued currency, exporting Mercedes and BMWs to China. While Spain, Italy and Portugal are being left ever further behind in a split-level union with an overvalued currency. The data is cruelly double-edged.
Or, in the words of Carsten Brzeski of ING,
It's the same old story: Germany in a league of its own, carrying a few of its neighbours along; and beneath that, the laggards that are teetering on the brink of recession.

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