Europe’s Creeping Comeback

Even as dark clouds form over Europe’s economy again, there may be a silver lining emerging from three-years of crisis.

From Ireland to Spain, the austerity demanded by policy makers in exchange for aid amid three years of debt woes is starting to deliver the competitiveness needed to restore economic growth even as the turmoil risks reigniting in Cyprus.

At the price of a doubling in unemployment and near-10 percent plunge in labor costs, the so-called peripheral euro nations are reviving manufacturing and trade. In Spain, exports reached a record 222.6 billion euros ($287 billion) in 2012. PSA Peugeot Citroen is hiring there and in Portugal.

Elected officials are racing to translate Trichet’s rebalancing into increased incomes to avert a lost decade of mounting debt and unemployment.

Joblessness already tops 25 percent in both Spain and Greece, while protesters have taken to the streets of capitals and on at least two occasions set buildings ablaze in Athens. Just two of 14 euro-zone government leaders have kept their posts in elections since late 2009 and extremists such as Golden Dawn in Greece are gaining support.

The combined account of Greece, Ireland, Italy, Portugal and Spain narrowed to a deficit of 0.6 percent of gross domestic product at the end of last year from 7 percent in 2008 and will be in balance later this year, according to estimates by Holger Schmieding, chief economist at Berenberg Bank in London.

While a slide in imports accounts for some of the correction, Greece boosted its exports outside the EU by about 30 percent in the fourth quarter of 2012 from the previous year, while Italy’s rose 13 percent in January from a year ago, he said.

Companies are taking advantage of the cost squeeze. Nissan Motor Co., Japan’s second-biggest carmaker, said Feb. 4 it would build a new compact family car at its Barcelona plant and invest 130 million euros after reaching an agreement on improved productivity.

“In the periphery, there are dark clouds in the form of recession and unemployment,” said Huw Pill, chief European economist at Goldman Sachs Group Inc. in London and a former ECB official. “But there is a silver lining to these clouds in the form of an adjustment process that is necessary, albeit painful.”

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