Nope, it’s not enough for the weakest of the "Zone"
Spanning the period April 14, 2010 to June 7, 2010, the euro lost 12.5% in value against the $US (this is not a trade-weighted measure of the currency value, but it’ll do). As the currency tumbled, Q2 nominal export income grew quickly over the quarter for the top 5 economies in the Eurozone:
- Germany, 6%
- France, 4.6%
- Italy, 8.3%
- Spain, 0.8% (definitely the exception to the rule)
- Netherlands, 7.2%
The export income is welcome in Italy’s economy, one of the PIIGS countries (Portugal, Ireland, Italy, Greece, and Spain). But what about Greece, or the rest of the PIIGS countries that desperately need the external income?
Well, Greece actually did quite well in Q2: nominal export income was up 5.8% over the quarter compared to a 0.1% decline in Q1. Perfect – that’s the point, right? Nominal depreciation begets external economic support via exports?
It’s not enough. The problem is, that the external support generated by a euro depreciation is too evenly distributed across the “Zone”. The result: those economies with both external and domestic demand posted record growth rates (i.e., Germany), while those with an overwhelming contraction in domestic demand posted further GDP declines amid reasonable external demand growth.
The chart below illustrates the pattern in GDP quarterly growth for Eurostat’s reporting countries, ranked by Q2 2010 growth rates in order of smallest (Greece, -1.5%) to largest (Germany, +2.2%).
It should be noted here that the Eurostat data is a “Flash” report of Eurozone GDP only. The breakdown by spending category will not be reported until the second GDP release, which is scheduled for September 2, 2010. Therefore, the nominal export numbers, which are seasonally and working day adjusted through June 2010 (the volume indexes are only available through May 2010), proxy the strength of external demand.
The interesting thing is that export growth is likely strong enough to keep the third largest (as of Q2 2010) Eurozone economy, Italy, afloat for now. However, oncoming austerity measures (I searched for a list of announced European austerity measures, but only came up with this – do you know a credible source/link?) will drive the positive feedback loop: rising deficits – raise taxes/cut spending – cut domestic demand – taxable income falls – deficits rise.
Rebecca Wilder
Note: I included export data only, although the trade balance, which is exports minus imports, data tells a very similar story: widespread improvement in the trade balance.
If the Greek had their own curency, they could just devaluate, after that they truck drivers would sudenly stop to care about the loss of their monopoly. They would stop the strike aalong with everyone else. Tourists would not be scared to visit Greece anymore, thus gdp would rise. Magic! No need to adress structural problems, a little devaluation here, a little government there, all problems will go away. Never waste any time fixing the structural problems. Not in Japan, not in Greece, not in the United Staates. its all just the evil feedback loop!
Just print, print and print and all will be good! OR NOT
That being said, devaluation is more easy politicly, and in some cases it deals with strucual problems by shrinking government in real terms…
The Euro Crisis and the Coming Euro Collapse Act II- Time to Check How Austerity Is Going
I agree totally with the comments of the famous economist Richard Koo, that follows the recipes Keynes propose and FDR did in the 1929 recession
Now the monetary policy alone is worthless, the economic agents are so depressed and afraid about the course of the economy, that nobody take any risks, so nobody invest, borrow a loan, lend money, open a new business or consume more than the strictly needed, even with very low interest rate.
There must be “somebody” to make demand to growth, and the only economic agent that can do that is the administration.
This was the same policy Nazis made in Germany, even they did not know they were “Keynesians”, that was the way they finish the huge unemployment in those days, putting the people to work in the autobahnen (motorways) network they made in the 30’s, that had an effect of “multiplier” for the productivity and helps the private recovery, in the same way FDR with his New Deal, and in both cases that works (unfortunately in the case of Germany the Nazis was the worst choice germans could have made)
Anyhow the two things are needed: low interest rates and administration expending