Is Europe doing enough in the face of recession?
It has come to be accepted that the recession, having come from the US, affects it most deeply. This article, from the Déchiffrages blog by Jean-François Couvrat, suggests otherwise, and asks whether we should be doing at least as much as the Obama administration.
The crisis is deeper in Europe than in the US
For a while, European governments were expressing their compassion towards the United States, such was the force of the recession there – and forceful it is. We would prefer, however, less pity and more lucidity for the crisis is no less serious in Europe than in the US, quite the opposite. What’s more the so-called recovery plans in Europe are culpably weak.
Yet again, a misunderstood statistic has confused the issue. The Bureau of Economic Analysis announced a drop of 6.2% in real GDP in the US during the last quarter of 2008. Not since the winter of 1982 has such a drop in production been recorded.
6.2%! Europeans have such lower figures in mind (1.2 in France, 1.8 in Italy and 2.1 in Germany) that we think we are escaping the worst. That’s wrong. The slope is just as steep, only the statistical presentation is different.
In the US, quarterly accounts are always presented at an annual compound rate. 6.2% represents the depth the recession would reach should it persist at the same rate as in the fourth quarter of 2008 for a year. This presentation considerably accentuates the movement.
In Europe, the results for one quarter are compared with the previous quarter. 1.2% is the measure of contraction in French production from the third to the fourth quarter of 2008. The published figure is less spectacular, but the contraction it reflects is scarcely less forceful.
Let’s present the US statistics in the European manner. From the third to the fourth quarter of 2008, the American GDP by volume fell from $11,712.4bn to $11,525bn. The contraction, therefore, was by 1.6%. France definitely fared less badly, but Italy (1.8%) and Germany (2.1%) did much worse.
If we present the European statistics in the American manner, the scale is clear to see. At an annual rate, French GDP fell by 4.8%, Italian GDP by 7.4% and German GDP by 8.5%.
It is no less relevant to measure how much GDP by volume fell in the fourth quarter of 2008 from its highest point in the cycle – the first quarter in France and Germany, the second quarter in the US. The comparison does Europe, in particular the eurozone, no favours.
What’s more, most European countries were starting from a lower or much lower point than the US, which since 2000 has benefited from ambitious monetary and budgetary policies.
If the crisis in Europe is as devastating as in the US, is it reasonable to oppose equally disproportionate recovery plans? According to the Nobel prize-winning economist Paul Krugman, Obama’s plan will be lucky to reduce by half the depth of the recession there. Yet, according to the OFCE, the British recovery plan barely reaches 1.3% of GDP. In France (0.8%), in Germany (0.4%) and particularly in Italy (between 0 and 0.1%), the governmental responses are, so far, derisory.