Wednesday, January 30, 2013

European Economic Performance Suffers Blow

Grant de Graf

In yet another blow to the European Debt Crisis, the latest economic statistics underscore the severity of the recession and the absence of a recovery, despite higher levels of confidence and optimism in the EU.

Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period a year earlier, Spain's National Statistics Institute, or INE, said in a preliminary reading. It said output for the whole of 2012 fell 1.4% from 2011.

The statistics once again show the futility of the austerity measures (vs stimulus) which are being propagated in the EU as a source of hope for economic recovery. Although the reduction of government spending in certain unproductive sectors are necessary, optimizing public expenditure towards projects that will stimulate economic growth are paramount.

While the example of stimulus in the United States has proven to be a more effective means in circumvented a deep recession (than austerity), the lack of a clear and focused stimulus plan, will impede a strong and sustained recovery, and strengthen many a critic's view that officials are simply "kicking the can" and that a "pick-up point" will be necessary at some point on the road.

Europe will need to learn from the example and mistakes of the U.S. Additionally, Spain will need to exist the Euro if it and Europe wish to avoid the same fate as the Dodo. The quicker European officials can come to their senses and realize that that they need to formulate a new EU blueprint that will allow for the exit of the Euro for weaker countries, the sooner Europe can start to focus on achieving real economic growth and regaining its position as formidable powerhouse on the globe.

Dow Jones's Paul Hannon looks at the continued divergence in euro-zone economies despite the slight improvement so far this year. With the euro also rising, he questions the strength of a future recovery.

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