The process of adjustment in peripheral Europe is starting to deliver results. The pace of change varies hugely, but some of the key indicators are moving in the right direction. Greece reduced its fiscal deficit before interest payments by a hefty 13 per cent of GDP between 2009 and 2012. Spanish and Portuguese exports have risen by 22 per cent in the last three years. Labour costs have been falling in Greece, Portugal, Spain and Ireland (though not Italy). Costs and trade deficits are, by and large, heading down. The example of Ireland, which is widely expected to return to modest growth next year, demonstrates that economies can achieve significant change. However, the process is patchy and has much further to run. It is too early to say that the Eurozone has fully recovered. For that, Europe will need to draw, still further, on its reserves of political will and public consent.
Ian Stewart is chief economist at Deloitte.
At the beginning of 2012, I wrote a paper called This sucker’s going down. It envisaged Greece, and possibly other Club Mediterranean economies, exiting the euro in 2012. The paper was obviously premature in its conclusion, but I don’t believe the end game has changed, despite the announcement of outright monetary transactions by the European Central Bank (ECB). It may be the case that outright monetary transactions have scared off the bond market vigilantes for now. But this won’t last forever. For the ECB to buy bonds, a country will first have to request more austerity. Can a Greek or Spanish politician really sell more austerity to his or her voters? German opposition to the plan should also not be overlooked. In the short-term, the ECB may be able to hold the line on the euro, but the forces pulling it apart remain stronger than those holding it together.
Graeme Leach is chief economist at the Institute of Directors.