SUMMARY

  • Europe At Risk For Recession
  • Will Germany Open Its Wallet?
  • Government Debt Goes Long

The city of Biarritz is part of the pays de Basque, which spans southwestern France and north-central Spain. The Basques’ unique cultural identity has often led to separatist sentiment. One of the symbols of the Basque region is the piment d’Espelette, a spicy pepper used in the local cuisine.

Last weekend, Biarritz played host to the latest leadership meeting of the Group of Seven (G7) countries. The G7 membership is taken from the largest Western-style economies: the United States, Japan, Germany, France, Canada, the United Kingdom and Italy. (Delegates from the European Union are also in attendance.) Its intent is to foster discussion and diplomacy among member nations, which together account for almost half of the world’s economic output.

Unfortunately, this year’s gathering of G7 leaders produced lots of separatist sentiment, and lots of spicy plot twists. European delegates returned to their homes without a coordinated commitment to re-open global trade, leaving the Old World to face the end of its economic expansion.

Europe emerged more slowly than other regions from the 2008 recession, and its expansion has been modest and uneven. In 2012 it was forced to cope with a sovereign debt crisis, and budget rules within the eurozone prevented the kind of fiscal stimulus that was applied in other jurisdictions. Regulators in Europe were less forceful in recapitalizing the region’s banks, which limited the flow of credit to firms and individuals.

Weekly Economic Commentary - 8/30/19- Chart 1

But starting in 2014, the eurozone economy found its footing. Growth rebounded, confidence recovered, and markets performed well. The unemployment rate in the region is almost 5% below its post-crisis peak, and several of the weaker countries in the area have regained strength.

The European Central Bank (ECB) deserves considerable credit for engineering the turnaround. Seven years ago, ECB President Mario Draghi initiated a series of forceful actions. Confidence was restored, and economic progress followed.