European recession drags on into sixth quarter

Politics is hindering Europe's emergence from its latest downturn, now six quarters long.

By DAVID JOLLY

The New York Times
May 16, 2013 at 4:20AM
Striking farmers market vendors hand out fruit and vegetables for free to consumers in Athens, Greece, May 15, 2013. The handouts were part of a protest against the government's plan to liberalize closed professions. (Angelos Tzortzinis/The New York Times) ORG XMIT: MIN2013051517173873
Market vendors on Wednesday handed out free fruit and vegetables in Greece, one of the hardest-hit countries in the longest eurozone recession on record. (The Minnesota Star Tribune)

PARIS – Europe slipped deeper into a widespread recession, according to data released Wednesday. But when European heads of state meet next week in Brussels, no big announcements about plans to stimulate growth are expected.

As the eurozone economy shrank in the first three months of the year — a record sixth consecutive quarter — economists say the region seems to be in policy paralysis.

With Germany, the Continent's economic heavyweight, in the grip of pre-election politicking, no big European policy moves are likely until after that country's elections in September. Even then, it is not clear that anyone has any master strokes planned.

"We don't see policymakers lifting a finger anywhere in Europe," Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., said Wednesday. "This is a depression rather than a cyclical downturn, and there must be a policy response if things are going to get better."

While Germany was able to barely sidestep a recession in the first quarter, France slid into one, according to the data on Wednesday from Eurostat, the European Union's statistical agency. French President Francois Hollande observed the occasion at a news conference in Brussels by indicating that his country should not be singled out for criticism.

"Are we an isolated case?" Hollande said of France. "No, because the recession in Europe and particularly in the eurozone is greater." He offered no prescriptions for growth other than to say, "If Europe, member states and France organize ourselves to promote growth, then we can return to the hope of a better future."

Organizing to promote growth, though, seems to be the mission that has long eluded the E.U., whose listlessness contrasts with the performance of other major global economies.

"The political situation in Europe is not conducive to making bazooka decisions," said Gilles Moec, an economist at Deutsche Bank in London, referring to an allusion by Henry Paulson, a former U.S. Treasury secretary, to the need to have economic firepower in a crisis. "No one's talking about creating any further jolts to the system."

The 17-nation eurozone economy contracted 0.2 percent in the first quarter from the last three months of 2012, Eurostat reported Wednesday. That was less than the 0.6 percent decline recorded in the fourth quarter but more than economists' expectations of a 0.1 percent decline.

France experienced a second consecutive quarter of contraction, the widely accepted definition of a recession, of 0.2 percent. Germany essentially marked time, with growth of only 0.1 percent. The economy of the overall union, made up of 27 nations, shrank 0.1 percent.

Eurostat said it was the first time the eurozone had contracted for six consecutive quarters since the creation of the single currency in 1999.

Moec of Deutsche Bank said low consumer demand, tight lending policies by a banking sector that is trying to shrink and corporate layoffs were are contributing to the decline. For most of Europe, Moec said, "It's a perfect combination of nasty headwinds."

Philippe d'Arvisenet, global head of economic research at BNP Paribas, estimated that the eurozone economy would shrink about 0.5 percent this year, after a 0.6 percent contraction last year. Growth will probably return in 2014, he said, "but probably below 1.0 percent."


FILE - In this April 24, 2013 file photo, French President Francois Hollande talks to the media after the weekly cabinet meeting in Paris. The sounds of raucous protest echo in the Presidential Palace, unemployment among is rising inexorably, and his country's economy has been called a potential time bomb at the heart of Europe. Hollande, among the most unpopular French leaders in modern history, remains calm. (AP Photo/Jacques Brinon, File) ORG XMIT: MIN2013051516574671
FILE - In this April 24, 2013 file photo, French President Francois Hollande talks to the media after the weekly cabinet meeting in Paris. The sounds of raucous protest echo in the Presidential Palace, unemployment among is rising inexorably, and his country's economy has been called a potential time bomb at the heart of Europe. Hollande, among the most unpopular French leaders in modern history, remains calm. (AP Photo/Jacques Brinon, File) ORG XMIT: MIN2013051516574671 (The Minnesota Star Tribune)
An empty car dealer in Milan, Italy, Thursday, April 18, 2013. Europe's auto market is in freefall. Once the motor for Europe's economy, the car industry has fallen victim to the region's widening recession and soaring unemployment. Carmakers have suffered 18 straight months of declining sales as people worried that they might soon be out of a job put off making big purchases. New car sales across Europe slid 10 percent in the first quarter of 2013 to 2.9 million, down from 3.3 million in 2012,
An empty car dealer in Milan, Italy, symbolized the decline in the European auto market during the recession, as people have cut back on purchases. (The Minnesota Star Tribune)

about the writer

DAVID JOLLY