A euro devaluation would have to be extreme to have a big impact on, say, Italian exporters.
At the annual meetings of the International Monetary Fund and the World Bank in October 2013, the eurozone crisis was officially declared over. A year on we know that this optimism proved illusory: we have entered year seven of a depression that refuses to end.
The timeline shows obvious parallels with the Great Depression in the US. It was declared over in 1936 when pre-crisis levels of economic activity were reached. Fiscal and monetary tightening led to a renewed recession in 1937 and 1938. In reality, these were not two consecutive recessions, just as there was no double-dip recession in the eurozone recently, or a trip-dip in the case of Italy. They were all long single depressions with interruptions. The eurozone depression started in 2008. What the world celebrated last year was the false dawn of one of these interruptions.
On many levels, our depression is worse than the one 80 years ago. It is not just a giant yo-yo. It leaves us permanently below the pre-crisis trajectory of economic output. Returning to that trajectory would require growth rates higher than those we enjoyed in the previous decade. The good news is that democracy is not in danger. Political stability, however, nurtures complacency. Without a clear policy response, the depression is in danger of turning into a secular stagnation – measured in generations, not years.
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