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Eurozone Officially Falls Into Double-Dip Recession

The Eurozone experienced its second straight quarter of negative growth in the third quarter of 2012, fulfilling the technical conditions of a recession. This recession is so far mild, with a -0.1% quarter following a -0.2% quarter. This is actually a bit larger than it looks because Europe doesn’t annualize its GDP numbers, so in the US this would be reported as -0.4% and -0.8%.

That’s still fairly mild, but the question of where growth will return lingers. Germany is contracting, and France’s “surge” to 0.2% growth isn’t much to write home about. Meanwhile, large southern European nations Italy and Spain remain depressed, with Greece completely off the map. The southern depression has started to impact the northern countries, and the actual solution for this mess remains completely off the table:

“Today’s GDP figures clearly demonstrate that the eurozone economy as a whole is in desperate need of macroeconomic stimulus,” ING economist Martin van Vliet said Thursday.

“With policymakers seemingly reluctant to engineer a coordinated pull-back from fiscal austerity, more monetary stimulus and a weaker currency is likely to be needed to put the eurozone back on a path of sustained growth,” he added.

Good luck with that!

The Eurozone cannot even manage monetary stimulus, let alone fiscal stimulus. The European Central Bank held interest rates steady last week, despite the recession. And if the economies, particularly in the south, cannot grow, there’s no real hope of success with resolving the debt crisis. A country like Spain or Greece just instituting austerity over and over again will only increase rather than reduce their debt load.

The overall European Union barely avoided recession with 0.1% growth, but this is almost entirely due to… the economic stimulus afforded to Britain from London hosting the Olympic Games. With that out of the way, they’ll flail around amid austerity. The Bank of England’s Mervyn King warned of an immiment triple-dip recession in Britain. The beatings will continue until morale improves, as they say.

I long ago gave up hope that US policymakers would take a hint from Europe’s disastrous experiment with austerity in the midst of a slow recovery. But we seem destined to repeat their failures.

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David Dayen

David Dayen