Europe Grows Apart

by Thomas Cooley, Ben Griffy, and Peter Rupert

Second Quarter data for 2015 are now trickling out of Eurostat. What we see is encouraging evidence of recovery for the major producing countries but a continent that is moving apart. Prior to the financial crisis and the Great Recession the economies were largely growing together but the performance since the crisis has been strikingly different. Even leaving out the tragedy of Greece, the economic fortunes of the European partners have been very mixed.

If we focus in on some of the larger economies there is at last cause for optimism about a European recovery…even Spain and Italy have returned to growth in the most recent data, although they remain far below their previous levels.

The so-called PIIGS–the periphery economies–are a different story but also an improving one. Ireland, Spain, and possibly Portugal are showing signs of growth.

Consumption shows much the same picture, but most countries have not returned to anything like their previous peak levels.

Investment has been very slow to recover in most of the countries and seems to be a major obstacle to recovery in the weakest economies, with several still 20-40% below the 2010 peak.

Government spending is equally varied across these economies. There is however a notable pattern of austerity throughout the continent (and in the U.S.) judging from the pattern of spending.

Exports are showing strong signs of recovery everywhere–strongest in the periphery countries–helped by a weakened Euro.

Euro-USD Exchange Rate-1_raw

Imports are quite varied across the economies reflecting the strength of the recovery in the various countries.

Overall, the tragedy of Greece does not seem to be impeding a gradual European recovery. Although the countries are improving at very different paces the fact that growth has returned more broadly has damped a lot of the dire speculation about the future of the EU.


Employment in Europe reflects what we saw for GDP growth. For the stronger economies employment has begun to rebound a bit, although the legacy of the Great Recession is a generation of young workers who never entered the labor force in their prime and are permanently impaired as a result.  In the weak economies unemployment remains high and job growth is weak or non-existent.

Employment (15 to 64)-12 Employment (15 to 64)-6 Employment (15 to 64)-5

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