Debunking the Hype about the European “Recovery”
Just because periphery county bond yields are down thanks to the tender ministrations of the ECB does not mean that Europe is on path to a recovery. And in a even clearer-cut case than the US, a technical recovery (as in hitting a bottom and showing some improvement from that) is a terribly pale shadow of the real think.
A new and suitably data-driven post by Zsolt Darvas and Pia Hüttl at the Bruegel blog throws cold water on the notion that Europes hardest-hit economies are on the mend. The key section:
Do these undoubtedly benign developments suggest that the three euro-periphery countries {Portugal, Greece, and Ireland have reached a sound and robust fiscal situation? Unfortunately, the answer is no
.On the one hand, our findings continue to suggest that the public debt ratio is set to decline in all three countries under the maintained assumptions and in fact their future levels are now projected to be slightly lower than in our February simulations (eg for 2020 our new results are 2-3 percent of GDP lower). But on the other hand, the debt trajectories remain highly vulnerable to negative growth, primary balance and interest rate shocks, especially in Greece and Portugal, though also in Ireland.}
For example, if nominal GDP growth turned out to be 1 percentage points lower than in our baseline scenario (either due to weaker real growth or lower inflation), Greek public debt would still be 133% of GDP in 2020 and 113% in 2030, the Portuguese debt ratio would be 119% in 2020 and 106% in 2030, while the Irish debt ratio would be 107% in 2020 and 87% in 2030
-snip-
Another way to look at the European cheerleading is that the officialdom is trying to bring the confidence fairy back to life. But this continued reliance on smoke, mirrors, and misguided austerian ideology is looking more and more like cargo cultism than sound policy.
The entire article is at
http://www.nakedcapitalism.com/2014/06/debunking-hype-european-recovery.html .