By: Jeremy Warner
August 13, 2013
One of the factors underpinning renewed confidence in the UK economy is the belief that the crisis in Europe is now essentially over. The immediate threat of banking and fiscal meltdown in the southern periphery has receded, and after one of the longest recessions on record – six successive quarters of economic contraction – there are even tentative signs of recovery.
Among eurozone policymakers, the relief is palpable. Mario Draghi, president of the European Central Bank, has waved his magic wand and apparently succeeded in calming the economic maelstrom. This is small thanks to the German core, which fought his actions tooth and nail but now seems more than happy to take credit. In any case, with the fear of financial Armageddon removed, European economies can begin the long march back to health. For Britain too, a key uncertainty for the banking and business sectors has been answered.
Or has it? For though it is true that some form of equilibrium seems slowly to be re-establishing itself in the European economy, it is at such a deeply impaired level that it can scarcely be regarded as cause for celebration. Unemployment, already at intolerable levels in some eurozone countries, is still rising and money growth remains exceptionally depressed.
Nor is there any end in sight to credit destruction, with deeply negative implications for SMEs and future jobs creation. According to a new report by Royal Bank of Scotland, Europe’s banks need to shed a further €3.2 trillion (£2.7 trillion) of assets (roughly equal to annual German GDP) to comply with new international capital standards.
IMF research cited last week by the European Central Bank puts the eurozone’s “structural unemployment” rate – that is the unemployment that won’t go away even after the economy returns to normal – at a staggering 10.1pc, up from 7.4pc before the crisis. If correct, it means that any European recovery will be a largely jobless one.