Eurostat Review Confirms / Upsets Conventional Views re Eurozone Economies

With the recent announcement of a post-unification “record” for German economic growth this past quarter – on which we will have more next week – and the equally bad news from Spain and Greece –

we thought it appropriate to consider some of the revelations contained in the 2009 regional yearbook of Eurostat, the EU’s official statistical agency.

Overall, the yearbook indicates the danger of a two-speed recovery across the 16-member euro zone

With the recent announcement of a post-unification “record” for German economic growth this past quarter – on which we will have more next week – and the equally bad news from Spain and Greece –

we thought it appropriate to consider some of the revelations contained in the 2009 regional yearbook of Eurostat, the EU’s official statistical agency.

Overall, the yearbook indicates the danger of a two-speed recovery across the 16-member euro zone

is getting worse with every new notch of belt-tightening that European governments apply to reduce high debts and deficits.

Some of Europe is seeing a slow pullback from the recession.

Forecasters, including the International Monetary Fund, have downgraded their growth projections through next year,

and anticipate that the speed of recovery will vary greatly from region to region as austerity measures kick in.

While some European countries are using austerity as an opportunity to push improvements to productivity and competitiveness for the long run,

these measures may actually further widen, rather than bridge, Europe’s divide.

That’s because cuts to government services and higher taxes will be easier to implement in countries that have already experienced faster growth,

and a greater challenge for slower-growth countries that still need government spending to boost demand.

Fiscal tightening will likely to be especially challenging for the southern rim of Europe,

parts of which have long been hindered by poor infrastructure investment and development

and a lifestyle where flexibility for workers is a long-cherished ideal.

There are also political and cultural impediments to implementing austerity measures in some southern regions.

Politicians know that voters pinched by austerity will surely express their grievances in future elections,

and workers used to trading low-income, rote jobs for leisure time may not want tip that balance toward more work unless compelled to do so.

But in economic terms, it’s clear that southern European countries will have to fix these and other problems to eventually catch up with their northern neighbors.

If such a divide widens, it could pose problems for the stability of the euro, and, in our view, sooner rather than later.

Countries that have been plagued by an interior north-south divide — like Italy and Spain — will have an even greater hurdle to clear.

Politicians and businesses are being challenged as never before to bridge a divide that, if unchecked, can weigh on a country’s entire macroeconomic performance.

Eurostat’s 2009 regional yearbook also reveals a stark contrast in unemployment and working hours between northern and southern Europe, as well as within individual countries.

One piece, based on 2007 data, shows low levels of unemployment recorded in all regions in the Netherlands and Austria, the northern parts of Italy and Belgium and the southern parts of the United Kingdom.

Within countries, nearly the entire Italian south and much of Southern Spain logged jobless rates that lagged the center and northern parts of the nations.

A separate Eurostat chart, released last year using 2006 data, shows the severe divide within a country like Italy,

where gross domestic product per inhabitant was more than twice as high in the northern region of Bolzano as it was in Campania,

the poor southern region where Fiat’s lowest-producing factory is located.

Finally, a note about working hours, according to this analysis from the New York Times.

Eurostat’s 2009 yearbook breaks down average working hours across Europe.

While Spain and Italy show that there can be big variations within a nation’s borders,

differences in time spent working are generally greater between countries than within any given country.

The data show that Eastern Europeans spend more time at work than others in Europe,

while those employed in the Nordic countries and Britain tend to spend less time.

If that sounds counterintuitive, Eurostat goes on to note that

the average time spent at work doesn’t necessarily translate into a strong economic performance.

“In fact,” Eurostat observes, “it is precisely the reverse.”