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The existential threat of euro implosion may be gone. But the self-congratulatory mood that has coursed through European officialdom over the past six months coincided with deepening contractions in many economies, unemployment rising to double digits across the region, and sovereign debt levels setting new records.
The numbers in Greece remain so staggering that they bear repeating over and again: an economy that has shrunk by a quarter since 2008 and with more than a quarter of the workforce out of a job. As Panos Tsakloglou, head of the Greek finance ministry’s council of economic advisers, put it, only Great Depression-era America and Weimar Germany are comparable. Greece has always been something of a eurozone outlier, but increasingly others are catching up. Spanish unemployment rates are almost identical and Italian contraction, though mild by Greek standards, will be much deeper this year than forecasters believed just three months ago. France, whose economy has come to a complete stop, could see unemployment touch 11 per cent.
Amidst this wreckage, Italian voters let out a yelp rekindling the debate over whether the eurozone’s austerity-led crisis response is exacerbating the problem rather than alleviating it.
Something important is now bridled: governments’ ability to reverse course. In all eurozone countries, the so-called “fiscal compact” is now law of the land, severely constraining policymakers’ ability to do anything but stick to demanding deficit and reform targets. As Mario Draghi noted, Italian reforms are “on automatic pilot” regardless of election results.
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