Not many countries would cheer about an economic growth rate of one-tenth of 1 percent, sustained for a mere three months. But for Spain, which has been mired in negative growth for two years, the tiny uptick in the third quarter of 2013 represents a kind of breakthrough. Encouraged, bond investors are now charging a lower premium to purchase Spanish debt. Meanwhile, Ireland projects it will no longer need support from Europe and the International Monetary Fund after December.
Perhaps there is an end in sight to the crisis that has sent Spanish unemployment above 26 percent, and the average rate for the 17 countries that use the euro above 12 percent. Rekindling European growth is an urgent matter, not only for that continent’s hard-pressed workers but also for the global economy, the United States very much included.
For now, though, good news from Spain represents a tiny silver lining in what is still a very dense, dark cloud hanging over Europe’s economy. Spain and its fellow eurozone debtors — Italy, Portugal, Ireland and Greece — don’t just need a trickle of growth to bring down their unemployment rates and debt-to-gross-domestic-product ratios. They need a gusher; many consecutive months of high-single-digit growth. And there is no short-term prospect of that.
Indeed, it’s difficult to imagine how there could be under current policies, both within individual countries and across Europe. Rapid growth would require robust domestic demand. At present, however, Spain and the rest are committed, at German insistence, to an export-led model based on tight fiscal policy and lower real wages. Spain’s domestic demand contracted yet again in the third quarter. It achieved growth only because of offsetting exports. Europe’s strongest economy, Germany, could help by importing more and exporting less, reducing its whopping 6 percent trade surplus. But the export-addicted Germans, quick to demand fundamental changes in their neighbors’ growth models, refuse to transform their own.
To be sure, much of what Germany insists upon in return for the financial lifeline it has extended its neighbors is justified, not mere mindless “austerity.” Specifically, southern Europe’s economies still have much more to do in the way of reforming their labor markets and regulatory systems, as Germany has already done, before they can truly be competitive. But the whole world can’t run a surplus. In the long run, the United States and emerging markets cannot substitute for nearby Germany as a source of demand for southern European exports.
Alas, recent indications are that Germany is retrenching on European integration, not advancing. Having grudgingly, but wisely, supported the European Central Bank support that rescued Spanish and Italian government finances, Berlin has since balked at such measures as a truly European system of deposit insurance, which would stabilize the common currency — but put more German resources at risk. Possibly that will change once Chancellor Angela Merkel forms a new government in the next few weeks, or months. Unless and until Europe achieves a better trade balance and more unified governance to go along with its single market and single currency, it could be condemned to slow, uneven growth at best — and renewed crisis at worst.