Euro area exit should be the new normal – An economic area with abysmal performance

The level of unemployment in the euro area reached 16 million people in 2016 or 10.1% of the population aged between 18 and 74 years. This is equivalent to the entire population of the Netherlands or 8 times the population of Paris. It would have been unimaginable to foresee the dismal performance of the euro area in 2002. However, looking retrospectively, the combined economic performance of euro area economies during that last 14 years has been abysmal.

Key Highlights

– At its core, the euro area, with no exchange rate movements between countries and a centralized central bank (the European Central Bank), failed as an economic project.

– Euro area economies combined GDP dropped 8% between 2008 and 2013 and investment rates within the private sector collapsed 16% and have yet to return to pre-crisis levels.

– The euro area GDP returned its pre-crisis level only in the last quarter of 2015, nine years after the unprecedented downturn.

– The euro area countries ditched the flexible exchange rate mechanism in 2001 and, with it, the possibility of bringing their economies out of stagnations or recessions

Scope

– Understand the structure of the Eurozone and the reasons behind its formation

– Assess the success or failure of the Eurozone project

– Understand the reasons for the project's perceived failure

– Analyze why the area has not seen any meaningful recovery since the financial crash of 2008

Reasons to buy

- What is the Eurozone and why was it established?

- Why can the project be seen as a failure?

- Is there any room for optimism going forward?

Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

The failed euro area project 6

The euro area’s economic performance has been disappointing 6

The single currency failed to increase the economic performance of the euro area 7

Poor economic performance in terms of volume of goods 8

Export industries bear the cost of the fixed exchange rate between 19 economies 10

German wage adjustment helped the country gain superiority within the euro area 11

Economic stagnation turns into “the new normal” after 2008 13

The recent economic performance of the euro 13

The European Central Bank’s goal is price stability 15

The ECB’s QE aims to boost Euro area GDP 17

The British experience with QE primarily benefited financial services 17

Lending between banks and industries has fallen since 2008 18

Conclusions 20

Creation of the Euro has led to a prolonged period of stagnation 20

Appendix 21

Sources 21

Further Reading 21

About MarketLine 21

Disclaimer 21

List of Tables

List of Tables

Table 1: Euro area real gross domestic product: by country, 2001-15 8

List of Figures

List of Figures

Figure 1: Euro coin created in 2001 by the European Central Bank (ECB) 7

Figure 2: Euro area real gross domestic product at PPS: by country, 2004-16 9

Figure 3: Euro area real gross domestic product at PPS: by country, 2008-16 10

Figure 4: Euro notes created by the European Central Bank (ECB) 11

Figure 5: Euro area GDP index and Investment rate, 2006-15 14

Figure 6: Euro are inflation, 2007-16 16

Figure 7: Erratic Performance of the British economy: by component, Q1 2008-Q1 2016 18

Figure 8: Loans from the euro area banks to industries: by industry entire euro area 2003-16 19

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