The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday.
The French and German economies both managed 0.2 percent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.
Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2 percent drop in the second quarter.
Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
This has an effect on our export of course. And given this week’s surge in jobless claims and the looming fiscal cliff, we could be looking at real trouble ahead.
The usual suspects are blaming “austerity” but that ignores the critical point: Europe is not the United States. We have a little leeway in how much money we can borrow (although that leeway is running out). Europe does not. Whether it’s good for the economy or bad, budget balancing is something they have no choice about.
That having been said, I’m curious about what the future brings. Economist are projecting a further contraction in Q4 followed by a stagnant 2013. But this will test their theories. If the Europeans can get their finances under control, this could work like the Reagan recession did — an awful hangover from years of bad fiscal policy followed by an expansion. The crisis Reagan faced was different: it was monetary, rather than fiscal. But they share an underlying truth: swallowing a bitter pill for future solvency.
(Of course, all bets are off if the Germans and French get tired of being dragged into the mire by the PIIGS.)
Protests and marches are going on around the Continent but I’m not sure what they expect. There’s no magic money tree the EU can shake to make this “austerity” unnecessary. The Euros are running out of Euros. Protesting and marching in the streets is not going to change that reality.