At last, after 18 months of recession, the eurozone economy is on the mend. Or is it? Although the numbers are finally heading in the right direction, they represent only the smallest of steps. Nor do they indicate that the euro’s troubles are over.
First, the good news. Not only has the bloc returned to growth, but it has done so with more gusto than expected. Germany is the powerhouse, of course. But France is now out of recession, as is Portugal – after two and a half grinding years – and although Italy and Spain are still contracting, they are doing so only slightly. Even Greece’s painful 4.6 per cent second-quarter decline looks less bad when set against the 5.6 per cent that preceded it.
As ever, there are circumstantial factors. At least some of the rebound can be accounted for by the bad weather that depressed activity at the start of the year. There is no denying that the eurozone is healthier than it was, though, and that business and consumer confidence are both markedly improved.
The champagne had better stay on ice, however. It is uncertain that the latest improvements will be sustained at all, let alone turn into meaningful growth. And with sentiment still far off pre-crisis norms, recent optimism is only relative.
Then there is the jobs problem to consider. Eurozone-wide unemployment may have dipped slightly of late, but it is still near record highs. Across the south, the problem is particularly acute. Youth unemployment levels heading for 50 per cent and beyond are blighting the lives of a generation, fostering social divisions and political extremism in the process. Stagnation, or a jobless recovery, will undermine the legitimacy of already weak governments and erode what little confidence remains in the eurozone project.
Finally, there is the euro itself. The worst of the bond-market turmoil may have calmed, but that is thanks to Mario Draghi’s promise to do “whatever it takes” rather than because the fundamental issues have been resolved. In fact, between the breathing space bought by European Central Bank and the inhibiting effect of looming German elections, progress – always tardy – has all but ground to a halt.
But action cannot be ducked for ever. For individual countries, that means pushing ahead with the often unpopular structural reforms that have been so long avoided. For the eurozone as a whole, it means closer fiscal union, and in the most immediate term the focus must be on the still-ailing banking sector.
After a flurry of activity, moves towards creating common deposit insurance and a shared resolution mechanism have largely stalled. Given German concerns that all measures to save the euro mean a blank cheque for profligate southerners, a pause ahead of next month’s vote is understandable. But neither policymakers, nor their voters, are off the hook.
While even the most tentative signs of economic recovery are to be welcomed, the hard work is not yet done.