The Eurozone got a bit of unexpected good news, as the 17-country area pulled itself out of recession and grew 0.3 percent in the past quarter. While the Wall Street Journal
was quick to note
that “a resolution to its banking and fiscal crises remains a distant prospect”, the numbers were a welcome reprieve from an otherwise grim outlook.Growth in Germany, the EU’s economic engine, powered the recovery. But Europe’s other heavyweight, France, also turned in surprisingly strong numbers. The French economy grew 0.5 percent—more than the United States. Perhaps the best news came from the Iberian Peninsula, where crisis-hit Portugal posted the best growth numbers of any Eurozone country. Spain, meanwhile, appeared to slow its free fall, shrinking just 0.1 percent. While sustainable growth may not be on the horizon for the Spanish, holding the line is good news for a country rocked by record unemployment
. Financial markets weren’t blown away by the news, but European stocks were up modestly
as investors showed signs of tentative optimism.The news wasn’t all rosy, though. The Netherlands remains stuck in recession, and the Cypriot economy continues to decline. Greek GDP is on track of lose half its value by the end of the year. Overall, as the WSJ
The return to growth in the currency area should deliver a much-needed boost to household and business confidence, but the recovery is unlikely to be anything but modest. Unemployment rates remain at record highs, bank lending to businesses is continuing to fall, and governments continue to cut spending in an effort to bring their rising debts under control. And without strong growth, it will be difficult for the euro zone to bring its fiscal and banking problems to an end.
While a modest improvement in economic outlook may well relieve some of the pressure on EU politicians, particularly in the south, the continent still faces serious challenges. The Euro was a seriously flawed concept to begin with and remains largely unworkable without major changes. If minor upticks in growth enable the Eurozone’s leaders to continue kicking the can down the road on reform, then today’s good news will end up being no good news at all.