Saturday, July 7, 2012

A divided Europe

The European crisis is often framed in terms of 'wealthy' Northern Europe bailing out 'poor' Southern Europe. Reality is more complicated.

Regional GDP as a percent of EU average (2009 data)

This map shows economic output by region. Dark greens show the regions of highest output, light green shows regions close to the EU average, while the poorest regions are colored pale yellow. The north-south divide runs right through the middle of Italy, and parts of northern Italy and northern Spain have output levels comparable to Germany.

Meanwhile, parts of eastern Germany have output levels comparable to Greece and southern Spain. Despite 20 years and vast amounts of aid, East Germany is nowhere near matching West Germany's economic performance. East Germany has never really recovered from having an overvalued currency after unification
Chart source: Eurostat

Judging by the very slow improvement of East Germany, it seems very unlikely that the PIGS (Portugal, Ireland, Greece, Spain) will be able to solve their problems by raising competitiveness. German experience with reunification probably explains why Germany is reluctant to give the PIGS large amounts of aid. They tried that with East Germany and it didn't work.

Regional unemployment (2010)

Chart source: Eurostat

In this map dark green shows high levels of unemployment while light yellow shows low unemployment. Southern Germany and Northern Italy are doing very well, while most of Europe struggles.

Given the divergent economic performance, a single currency no longer seems to make sense. Of course the USA also struggles with large regional differences in wealth. However, it is the vast differences in unemployment rates which will probably make the Eurozone unworkable. Salzburg region, Austria has 2.5% unemployment, while Andalucia region, Spain suffers from 30% unemployment.

Source: Eurostat


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