Beneath the headline-grabbing numbers showing on Thursday
that the euro zone has fallen into recession, there lies a more
positive and probably more important story: the growth
trajectories of the currency blocs four largest economies
have moved considerably closer together.
The convergence of Italy and Spain, the two economic
weaklings of the quartet, with the strongman Germany, and
France, which had recently been caught somewhere in the middle,
eases the risks posed by the biggest design flaw of the euro
zone. This is the fact that, because of the absence of a true
fiscal union, it is only as strong as the weakest of its most
powerful constituent parts.
The bad news of the day was that the euro zone has entered
its second recession since 2009, after gross domestic product
(GDP) declined by 0.1 percent from July to September, on a
quarter-over-quarter basis. This marked the second straight
quarter of falling output the most common definition of
a recession. As a result, the euro zone economy is now 0.6
percent smaller than it was a year ago.
However, this mild third-quarter decline
was both less steep than forecast and even less pronounced than
in the second quarter, when GDP fell by a fairly gentle 0.2
There was, moreover, a rather benign devil in the details.
Output in Italy, until Thursday the weakest economy among the
euro zones four leading nations, shrank by only 0.2
percent in the third quarter a considerable easing from
0.7 percent for April to June, and a nadir of 0.8 percent in
the first quarter. Spains decline in output also eased
slightly, to 0.3 percent. In both countries the speed of the
fall has slowed to its gentlest pace in a year. France
confounded skeptics who cavil at its inclusion in the
core of inherently healthy euro zone economies, by
growing for the first time since the fall of 2011. Its
better-than-expected performance was thanks partly to strong
By contrast, some other economies which are more
consistently placed by analysts in the core performed worse
than before. Growth in Germany eased by 0.1 percentage points
to 0.2 percent, with Austria and the Netherlands tipping from
growth into decline.
The euro zone sovereign debt crisis, which has continually
dominated international financial markets for more than a year,
would, naturally, be much nearer its end if the euro zone was
experiencing overall output growth rather than decline.
However, Thursdays figures suggest that the nature of the
decline is far less poisonous than in the second quarter, when
both Italy and Spain were shrinking faster than now.