The euro area’s economy has grown for the second consecutive year in 2015. Meanwhile, unemployment in Europe is falling and Greece’s exit is no longer grabbing headlines. However, some risks persist. Thus, eurozone economy is worryingly dependent on exports and that is a sign of incomplete recovery.
Slow-growing northern economies had to invest in the peripheral countries such as Italy, Spain, Portugal and Greece, where potential returns were higher. As a result, the imbalance in trade emerged as peripheral economies consume more than they can produce.
Thus, Germany recorded a trade surplus of 2% of the eurozone’s GDP before the financial crisis, while Spain had a deficit of 1% of the euro area’s GDP. From the economic point of view, this imbalance is within the normal range as savings-rich countries invest in poorer ones, thus stimulating growth in the long term.
But in the euro area the borrowed money went for consumption or investment in the real estate bubble. Then investment collapsed amid financial panic and banks declared bankruptcy. So the best way out of this situation for peripheral economies was exports as it could provide new jobs and money to repay debts.
Consequently, southern European countries dramatically increased exports, most of which went to the global market as consumption in the key countries of the euro area grew very slowly.
Easing monetary policy of the European Central Bank slightly weakened the euro, but it was not enough to raise wages and boost inflation.
Experts say that Europe’s economy needs extra fiscal and monetary boost for real economic recovery as the euro area’s weak and distorted recovery carries risks.
