The Economist's Ryan Avent has made waves with a well-timed punchy question: why are we acting like the fact that the eurozone hasn't actually imploded means everything is alright there?
Some perspective is in order. Real euro-area output is at roughly the level of the end of 2006 and it is declining. The euro-area economy hasn't grown since the third quarter of 2011. Total employment is below the level first attained in the second quarter of 2006 and it is declining. The unemployment rate is of course at a record high 11.8%. And inflation—both core and headline—was virtually nil in the second half of 2012.
That's simply a dismal macroeconomic performance.
The European Central Bank deserves some credit for having halted the repeated attacks on the currency — and perhaps that credit should go to the president of the bank, Mario Draghi, himself. His declaration last July that the euro would be preserved "whatever it takes" is widely held to have been the turning point at which the survival of the euro was assured.
But the ECB's target should be higher than merely ensuring the continued existence of the currency it was created to oversee. And it's not just that the bank is trying, but failing, to boost demand in the eurozone. It has done, essentially, nothing. Interest rates remain well above even the zero-bound where conventional monetary policy falls apart, and its unconventional measures — which it was happy to employ when it was in a do-or-die situation — have been non-existent.
According to statistics released yesterday, Germany contracted by 0.5 per cent in the fourth quarter last year. Germany! That's the country that's supposed to be the beating heart of the eurozone. It's one thing when the analysis was that the ECB was unfairly trading Greek health for Germany; but based on who's being touted as success stories these days, you'd be forgiven for thinking that it's trading German health for Estonian. (Estonian GDP grew by 8 per cent in 2011, but that still left it 9 per cent below its pre-crisis peak — it's certainly not an unambiguous success story).
Draghi is apparently hoping that global growth will sweep in and restore the European economy from without, and that all he needs to do is keep it ticking over until then. But the job of a central bank governor is not to wait for dei ex machinae. And given the size of the eurozone, it may be rather hopeful to conclude that the is such a thing as a separate worldwide economy. Can the rest of Europe have a proper recovery with the eurozone depressed? What about the economies of North America, or Japan?
There's a temptation, especially on the part of those pessimistic about the EU in general, to throw their hands up and declare the situation irreconcilable. But despite — maybe because of — the ECB failing to even recognise there's a problem, it's not clear that it has no possible solutions. Once it gets its head out of the ground, maybe it will realise there are things it could have been doing all along.