At the start of this year, 2016, it is worth stopping to reflect on the economic situation of the Euro zone on the basis of the most recent data published by Eurostat. This will also enable us to answer several of the questions asked by internets users after the publication of my column entitled Change Europe now.

Let’s begin by comparing the countries in the Euro zone, taken as a whole, with that of the United States.

First we note that the ‘big recession’ in 2007-2008, initially triggered off by the American sub-primes crisis and the failure of Lehman brothers in September 2008 was of approximately the same magnitude in Europe and in the United States. On both sides of the Atlantic, economic activity fell by about 5% between the end of 2007 and the beginning of 2009; this made it the most serious world recession since the crisis in the 1930s.

Recovery began in the course of 2009 and, by the end of 2010-beginning of 2011 economic activity had returned to almost the same level as that of the end of 2007. Then in 2011-2013, we note a further fall in activity in the Euro zone, whereas recovery was continuing steadly in the United States.

In Europe growth finally began again modestly at the beginning of 2013 but the damage had been done: by the end of 2015, GDP in the Euro zone had still not exceeded its level at the end of 2007, whereas the United States had experienced cumulative growth of over 10% between 2007 and 2015. Given the slow but steady rise in population, particularly in France, there is no doubt that the per capita level of GDP in the Euro zone in 2016-2017 will be lower than it was in 2007. In other words, a whole decade has been lost: this has never been seen since World War Two.

The reasons for the European recession in 2011-2013 are now well known: while the United States demonstrated a certain degree of budgetary flexibility to focus on growth, the countries in the Euro zone endeavoured to reduce their deficits too rapidly in 2011-2013 with, in particular, excessively heavy increases in tax in France which led to stifling the upturn, to the rise in unemployment and eventually to the rise in deficits and in the public debt which, it had been claimed, the intention was to reduce.

Why were the Europeans so poorly coordinated, thereby transforming a crisis which originated in the private financial sector in America into a protracted European public debt crisis? Undoubtedly because the Euro zone institutions were not designed to deal with a problem of this dimension. A single currency with 19 different public debts, 19 interest rates on which the markets can freely speculate, 19 rates of corporate taxation in unregulated competition with one another, and no common social and educational standards. This cannot work.

Above all the rise in national self-interests has undoubtedly prevented Europeans from adapting their institutions and their policies. In specific terms, when the financial markets began to speculate on the debt of the countries in Southern Europe as from 2010-2011, Germany and France have on the contrary had the benefit of historically low interest rates and washed their hands of the fact that the South of the zone was going deeper into recession.

From this point of view, the following graph is edifying:

We note that the average in the Euro zone masks very different realities between countries in the zone. While Germany and France did relatively better (nevertheless with an appreciable lag in growth behind the United States) the austerity treatment, the explosion in interest rates and the mistrust in the financial sector have taken their toll in Italy, Spain and in Portugal.

The most extreme case was of course Greece where the level of economic activity is still today a quarter weaker than it was in 2007.

What should be done today? I will not repeat the arguments I developed in Change Europe Now: a conference of Euro zone countries to decide on a moratorium on the repayments and a debt restructuring process (as there was in Europe in the 1950s to the benefit of Germany in particular); a renegotiation of the 2012 budgetary treaty to finally introduce democracy and fiscal justice.

What is certain, and this is illustrated fairly clearly by these few graphs, is that it makes no sense to ask countries where the level of economic activity is 10% or 20% lower than 10 years ago to achieve primary surpluses of 3% or 4% of GDP. This, however, is what the Euro zone institutions, with Germany and France in the lead, continue to demand of Greece, Portugal and Southern Europe as a whole. (This was unfortunately confirmed at the disastrous European summit on 4 July 2015. This merely left the question of restructuring the debts until a later date and maintained the unrealistic aims of budgetary surpluses, while decreeing a sell-off of Greek public assets at prices which, in the present context, were of necessity heavily discounted). On the contrary, today the top priority should be to decree a moratorium on the debt until the level of activity and employment returns to an acceptable level.

If we add to this the fact that we are in great need of the mobilisation of all, and in particular of Southern Europe, to present a united and cooperative front to tackle the refugee crisis, the present European strategy is truly nothing less than collective suicide and irrationality.

Post originally published in French as « 2007-2015: une si longue récession » Traduction Kristin Couper

(data series in xls format available here)