reuters

THE euro area is falling into such a deep hole that the recovery, when it eventually comes, will be a long, hard journey. Figures released on Friday May 15th showed that GDP in the 16-country currency zone fell by 2.5% in the first quarter, an annualised rate of some 10%, far worse than many analysts had feared. Germany, the largest economy in the group, fell even harder: its GDP shrank by 3.8% in the three months to March and has plunged by almost 7% since its recession began a year ago. Italy's GDP fell by 2.4% in the quarter; Spain's by 1.8%. The 1.2% fall in France, large by any normal standards, almost counts as a boom.

The figures confirmed that the euro zone has been hit far harder by the global downturn than its rich-world peers (and largest export markets) in America and Britain. When spending in these countries dried up, because of scarce credit, they exported some of the pain to their suppliers. For that reason Germany has so far paid a higher price for its reliance on exports than the Anglo-Saxon countries have borne for their dependence on credit and rising house prices. Since the collapse of Lehman Brothers in September, export-led manufacturers have been hit hardest. For example Slovakia, the euro zone's newest member (it joined in January), saw its GDP crash by 11.2% in the first quarter. Its economy leans heavily on carmaking and its loss has been far more severe even than in Germany.

One of the ironies of this downturn is that it was caused by global housing and credit busts, and yet the economies that have suffered most, such as Germany and Japan, sat out the credit boom. Even in Europe some sinners have faired better than saints, in GDP terms at least. As painful as Spain's construction bust is, in terms of lost jobs and evaporating tax revenues, its economy has contracted less and more slowly than Germany's.

Despite the carnage in continental Europe, the sense of crisis among the population is not yet as great as in America or Britain. That is because of another irony: Europe's inflexible labour markets may hamper jobs growth, but they also work against rapid lay-offs in recession. The unemployment rate in Germany has scarcely budged in the past year. The bad news on euro-zone jobs has mostly been in Ireland and Spain, where jobless rates have roughly doubled in a year. Ireland is one of Europe's most flexible economies. Spain has its rigidities, but at the peak of the boom as many as a third of its workers were on fixed-term contracts. Those jobs can be shed quickly and easily. In both countries, jobs are disappearing fast in the construction industry, because of collapsing house-building.

Things will not get much better soon. Business-activity indicators across the euro-zone are starting to pick up from record lows. That points not to a revival but rather to a slower rate of GDP decline in the present quarter (it could scarcely get worse). A meaningful recovery is a long way off. Firms cannot take losses forever without shedding jobs. Unemployment in Germany and elsewhere will begin to pick up quickly this year and carry on in 2010. Even where cutting jobs is costly, it is unavoidable given the scale of the fall in GDP. The European Central Bank seems to have hunkered down for a long recession. It is now prepared to offer banks unlimited loans for 1% for up to 12 months, and that horizon may even be extended. When you have fallen so far, it is a long way back out.