One euro crisis may be over, but another has begun. The single currency is no longer under siege in financial markets, but it will not prove politically viable unless growth returns. Any residual hopes of an early recovery were dashed by GDP figures last week that showed the eurozone still mired in recession.
Euro-area output shrank in the first three months of this year by 0.2 percent compared with the final quarter of 2012. That decline, which was a bit worse than expected, left GDP 1 percent lower than a year ago. Output has now contracted for six consecutive quarters in a recession stretching back to late 2011.
The downturn is still steepest in southern Europe. Output fell by 0.5 percent in both Italy and Spain, the third- and fourth-biggest economies in the eurozone. But GDP is now declining in most eurozone countries, including France, the area's second-largest economy, which is back in recession following a second quarter of declining output, of 0.2 percent. The main exception remains Germany, the biggest economy, though it barely grew in the first three months of this year. Output was up by a lower-than-expected 0.1 percent (following a 0.7 percent fall in late 2012).
The recession could well drag on for another quarter. Based on a recent survey of purchasing managers, output in services and manufacturing continued to shrink last month. Even if a recovery does get underway later this year, it will probably be feeble. Earlier this month the European Commission forecast that annual GDP would fall by 0.4 percent this year and that it would grow by only 1.2 percent in 2014.
The danger is that even if growth does reappear it will be detectable only in decimal-point statistics and not in people's lives. The biggest risk stems from unemployment, which now stands at 12.1 percent in the euro area, the highest on records going back to 1995.
Earlier this month the European Central Bank (ECB) brought down its main interest rate, from 0.75 percent to 0.5 percent. Last week's poor GDP figures will increase pressure on the ECB to take further action to foster a recovery when its governing council meets in early June.