This graph is taken from a full page Financial Times article from last week (behind paying subscription wall) entitled “Is the euro forever?” and, as its title suggests, it is not very bullish on the big eurozone economies (Germany, France and Italy).
It reflects expected rates of growth in the coming years, and shows that expectations for the US economy increased strongly around 2000 and have remained strong ever since, whereas expectations for the eurozone sort of increase at the same time but have collapsed after a brief spurt. In short, economists think that the Eurozone is going to stagnate for the foreseeable future.
But let me put things in perspective.
The conclusion of the linked article is as follows:
Irrespective of whether the debate about the sustainability of monetary union is framed in terms of political union, as the Bundesbank used to do, or in terms of economic and institutional factors, one arrives at the same answer. Present policies, institutional arrangements and political attitudes are incompatible with a sustainable economic and monetary union in the long run. Something will have to give.
The full article is too rich and complex to summarise here in an easy way, but the quoted conclusion, together with the above graph, paint the picture of a very ill eurozone economy.
But let’s look at it another way.
This is the above graph, converted by me into an excel version:
Now take a look at this:
This looks like US growth has experienced an upturn in expectations, but a fairly small one. meanwhile, Europe has indeed seen a decline in expecations, but it’s pretty insignificant.
Guess what – it’s the exact same graph as above, only with a different scale.
Now let’s take this a step further:
This is the same graph, with one correction: i have converted the GDP growth numbers into GDP per capita (per person) growth, by using the number available for the 1994-2002 period (source World Bank data: 1% population growth for the USa, and 0.3% for Germany, France and Italy.
So, over the period, GDP growth per person is still expected to be quite similar in the two regions. So while the US economy is getting bigger, individuals are getting richer (on average) at a pretty much similar rate on both sides – simply there are more new people in the USA than the eurozone.
Now let’s take a final piece of data, which was linked to in a recent diary by bonddad:
Total Household debt increased at a compound annual growth rate of 11.81% over the same time period.
And it’s the same with Federal debt. (and meanwhile, eurozone debt has increased only slightly)
So, my conclusion is as follows:
- The European economies are not doing great, but a lot of that is a question of perception, especially the short term comparison with the US economy
- that comparison is flawed because the USA have gone on the wildest debt-fuelled spending binge ever, made possible by “Bubbles” Greenspan decision to open the taps in full, and by Bushco’s decision to spend like a drunken sailor (and with the same kind of results, as in Iraq – a lot of broken stuff and personal suffering).
The current US growth is NOT sustainable, and WILL NOT BE sustained.
And the lesson of these graphs is that the Greenspan bubbles are actually providing pretty value for money, considering the amounts injected into the economy, and the pretty low rates of net income growth for average Americans.
So just take what the financial press says about the eurozone and the US economy with a grain of salt.
