Europe’s economy has been hit so hard by five years of crisis that 1.6 percent growth makes Germany look like a powerhouse and Spain can boast of being a job-creating machine with 23 percent unemployment.
The tepid recovery is just fine with bond investors. They are charging Italy and Spain less than 2 percent to borrow for 10 years, compared with more than 7 percent at the height of the crisis. Euro-area economic confidence reached a four-year high last month.
But the cheaper oil, declining euro and European Central Bank money spurring an upturn in the economy haven’t answered key questions about the currency region’s future. Greece’s membership still hangs in the balance and a political backlash in both the richer north and poorer south makes steering the economy even harder.
“The cyclical recovery we see right now is still mainly driven by the weaker euro and lower energy prices,” said Carsten Brzeski, chief economist at ING Diba AG in Frankfurt. “It’s not strong enough to really make the euro zone sustainable and forget about all the structural and institutional problems.”
Eight quarters of growth still haven’t made up for the losses the euro-area economy suffered during the debt crisis or unleashed job creation. Unemployment across the 19-nation bloc held at 11.1 percent in June, the European statistics office said Friday. For under 25s, it’s twice that.
Spain, the euro region’s advertisement for austerity-led recovery, had the highest rate of joblessness behind Greece. Prime Minister Mariano Rajoy, facing an election this year and a challenge from the anti-austerity Podemos party, is telling voters the country creates more work than anywhere else.
The International Monetary Fund had a less positive tone when it gave its view on the euro region’s outlook last week.
“The medium-term outlook is subdued, as a chronic lack of demand, impaired corporate and bank balance sheets, and weak productivity continue to hold back employment and investment,” the Washington-based fund said.
The most worrying figure was an estimate that the euro area’s growth potential -- an educated guess about how fast an economy can expand without spurring inflation -- has dropped to around 1 percent, about half the pre-crisis level.
Continent-wide numbers the ECB uses to set interest rates for the 338 million euro-area citizens mask a geographically divided economy: while Germany and its northern neighbors deliver prosperity, post-traumatic stress stalks the south.
The only northern country with a jobless rate above 10 percent is Slovakia, population 5.4 million. None of the southern countries that tapped bailouts are below that level and France, the economic and political hinge between north and south, is at 10.2 percent.
Then there is Greece: the country survived its latest brush with financial ruin with a tentative accord on a third bailout. Seventy-one percent of analysts surveyed by Bloomberg said a Greek exit could be back on the table next year.
Greece’s flirtation with doom in late June and early July didn’t spark selloffs in other southern European markets as happened in the past, thanks to the creation of firewalls financed by European governments and the ECB’s willingness to act as the ultimate backstop.
But it did trigger an ugly debate about the future management of the currency zone.
“There is bailout fatigue in the core and there is essentially austerity and reform fatigue in the periphery,” Nouriel Roubini, chairman of Roubini Global Economics, said last week on Bloomberg Surveillance. “The risk is that populist parties of the right and the left in Italy, in Spain, in France, in other parts of the euro zone could come to power.”