Putting the Euro recovery in perspective

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By Leith van Onselen

International media has been awash with reports hailing the European crisis over, following the Euro Zone’s 0.3% growth in the June quarter, which ended six consecutive quarters of contraction (see next chart).

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While the result is encouraging, and augers well for global growth (since Europe is now contributing to rather than detracting from growth), it needs to be kept in perspective.

First, as shown by the below chart from The Economist, the Euro economy is still smaller than it was in the fourth quarter of 2007, and has significantly lagged growth in the US (see next chart).

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Moreover, there remains marked divergence between the Euro member states, with growth driven primarily by rebounds in Germany and France:

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Whereas the Greek, Italian, and Spanish economies are still stuck in first gear or outright contracting:

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The Euro labour market also remains in the doldrums, with overall employment still falling and the unemployment rate stubbornly high:

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So while the “green shoots” are encouraging, we need to see growth broaden and strengthen, and unemployment start to decline, before we can confidently proclaim that the European crisis is over.

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  1. This reminds me of the same kind of recovery that Japan has enjoyed over the last two decades.

    Euro zone is as strong as the weakest link. And the weakest link is Greece which is still in contraction with unemployment at all time highs, whilst still in tourist season.

    • didnt you see the graph – greece’s recession is over!

      they grew by 0.2% last quarter !

      /scarcasm off

  2. May I ask a question of you UE?

    “While the result is encouraging, and augers well for global growth”

    What actually do economists mean when they say growth is a good thing? We all know that perpetual growth is mathematically doomed. Also, in many ways if growth stopped and progress was diverted to promote efficiency it would be a better world.

    Zero or negative growth, reduced make-work consumerism and increased efficiency of energy and resource usage would see many of our problems as a species disappear.

    Do we pursue growth because it is the only thing we know that works? What is the underlying philosophy of the economics profession?

    • +10

      That does not compute here. Though give these guys credit they do have some notion of what you say but to say it out loud would destroy there cred and end this sight.

    • “We all know that perpetual growth is mathematically doomed”

      Actually, it’s not. Humans will always find better ways to do things, which will increase the amount of growth from a given amount of inputs (resources). Even if resources were fixed, growth would still expand owing to increasing efficiency/productivity. This is the kind of growth that is good and the kind that boosts living standards (GDP per capita), unlike the growth derived from increased resource use/consumption (e.g. ever increasing population growth).

      Regular readers would be aware that I oppose ponzi growth (for example, see here and here). I am not one of those narrow “growth for growth’s sake” economists.

    • Perpetual change is possible, I agree.
      Perpetual growth is not possible in a finite universe.

      Exponential growth is dx/dt = kx .. x increases by a % of itself per fixed time and will end in tears.

      References to growth in economics always seem to apply to measurable variable – GDP, price, output. Perhaps I am mistaken, but it sounds like exponential growth of a variable to me.

      Increases in efficiency follow the form

      Q = 1/(1-eff) where Q tends to infinity as eff tends to 1 .. and yes I agree that this is unbounded and desirable. Q (Quality) is used in physics as the measure of damping in resonant circuits – its a well known value.

      I don’t think it is fair to mix exponential growth with the Q factor and say that they are the same thing.

      Basically, you seem to be agreeing with me that 1/(1-eff) is what we want to aim for. I was actually going to mention the Q factor, but thought it would not interest anyone.

      Are you telling me that economists have never thought of replacing the GDP measurement with something like a Q factor that we can chase all the way to infinity without destroying the world?

      I don’t believe you! You are pulling my leg!

  3. “The greatest shortcoming of the human race is our inability to understand the exponential function.” Professor Albert Bartlett


    UE the view you expressed
    ” Humans will always find better ways to do things, which will increase the amount of growth from a given amount of inputs (resources). Even if resources were fixed, growth would still expand owing to increasing efficiency/productivity.”
    is the “cornucopian, techno-optimist view” which is usually followed by some Mathus bashing. Professor Bartlett elegantly disposes of this argument in his lecture. You can search for counter arguments, but I have never seen any of substance. People seem to desparately want there to be loophole to the endless growth story and it usually just boils down to “we really mean things always get better – its the same thing as growth”. No, it’s not.

    The more complex understanding of the exponentialist view is the dynamic process of boom/bust cycles viewed as a discrete time series, which when integrated, forms a feedback loop in a complex, dynamic system constrained by external parameters. An example would be long term populations that thrive and collapse in cycles, but maintain an average population level that is resource constrained. The exponential boom/bust is a 2-state feedback mechanism (like a furnace regulator).

    I realize this is probably way out of the remit of conventional economics, but I think it is of the utmost importance that at least some of our economists begin to grasp this. What Professor Bartlett is saying should terrify us. If a population of wilderbeasts have a population boom/bust, who cares. No one will notice. On the other hand, Earth now has 7Bn humans all connected. A bust phase now will be something unprecedented. dx/dt = kx says about 5Bn extra will die this century. Maybe we will fix it, but mathematics says no.

  4. Interesting – I hadn’t seen those posts, but I have had thoughts along those lines myself.

    “What is needed, I suggest, is a way of analysing co-existing exponentials: tangible and intangible. ”

    1. One way of thinking about this is to represent “money” as a complex number with a real (tangible) component and an imaginary (intangible) component.

    2. As we move into virtual worlds (intangibles) the exponential law is actually defeated, as the real resources required for exponential growth becomes linear.

    For a start, good luck explaining this to anyone. Next, even if you do recast the economy in this form, the tangible component must exhibit long term stability – which requires a feedback loop.

    Long term stability probably has only one candidate – energy or resource constraint. A complex system will still be subject to goal seeking (gaming the system). The intangibles will leak into the tangibles, and you will still get boom/bust cycles.

    Steve Keens Minsky program may be a good tool to explore this. Perhaps there are long term stable configurations for complex systems? My intuition tells me no – boom/bust is inevitable in complex dynamic systems. It is however, what we should be working on.