Last year the world kind of forgot about Europe. After ECB head Mario Draghi vowed to “do whatever it takes†to get the Continent growing, the markets calmed down, money got cheap and plentiful and functionally-bankrupt countries like Greece, Italy and Spain stopped making scary headlines. To the casual observer it began to look like the euro project might actually succeed.
Then the mirage evaporated. Five years into a recovery that should, if it followed the normal script, be in danger of overheating, the major eurozone countries are actually slipping back into recession. Germany and Italy clocked in with -0.2% GDP growth in the second quarter, while France was exactly zero. For countries that continue to pile new debt on top of already unsustainable mountains of old debt, zero growth isn’t stasis, it’s death. And the media is starting to catch on. The following headlines appeared in the DollarCollapse.com breaking news links list in just the past two days:
France finance minister “I refuse to raise taxes to close any budget gapsâ€
End of the Wirtschaftswunder? Germany’s sudden slowdown
UK exports to EU are ‘dead in the water’
Europe’s economy is broken
Broken Europe: economic growth grinds to a standstill
German yield below 1%: 4 takeaways
Washington Post: Europe stuck in ‘greater depression’
Germany is itself a victim of EMU’s austerity fanatics
What happened? The appropriate answer depends on the time frame of the person doing the asking. The immediate problem is that Draghi talked a good game but didn’t actually do very much. While the US Federal Reserve and the Bank of Japan were flooding their economies with newly-created currency, the European Central Bank actually took euros off the market between 2011 and 2013.
The predictable result of less money in circulation is a stronger currency. Between 2012 and 2014 the euro appreciated against the dollar by about 10%, in effect raising the price of eurozone exports by that amount.
