Help for the Canadian economy? Yes, from Europe. -

Help for the Canadian economy? Yes, from Europe.

The eurozone recovery is shaky, but it’s still a big deal

Europe is back!?!

Jesco Denzel/Bundespresseamt/Reuters

The eurozone’s recession is formally over. Good news—but how good for Canada? The European Union is the second-largest destination for our merchandise exports, but that means eight per cent of the stuff we sell abroad every year ends up there. It’s not much compared to the U.S.’s 73 per cent slice of our export market. Europe matters more for the U.S.’s trade balance sheet, where it accounts for about 20 per cent of goods sold abroad. Exports, though, account for only about 10 per cent of U.S. GDP.

Still, the eurozone’s economic resurgence could provide an important lift to the U.S. recovery, and, through that, to Canada as well. Here’s why:

1. The U.S. needs to export more and seems ready to do so. So far, the U.S. has been able to restart its economy largely by reviving consumer demand and housing. While that might have been the only viable strategy in the early stages of the recovery, it doesn’t seem like a sustainable trend in the long term. With median incomes stagnating,  American consumers can’t go much further without taking on new debt. The housing market, with a few local exceptions, has plenty of room to grow without wading into bubble territory, but real estate rallies, as we know know well, can’t last forever. What then? Well, exports, for example. One of the root causes of the financial crisis was global imbalances: America’s super-sized current account deficit and China’s equally massive surplus. The only sustainable way forward for the global economy, analysts warned back in 2009, was for the two to recalibrate their economies. The U.S., it seems, is ready to do that. The Obama administration, the Wall Street Journal noted, seems a lot keener on international trade than it did during the first term. Washington has signed a flurry of trade agreements and is pressing ahead with two massive trade negotiations, one with Asia, the other with the EU. And with its low manufacturing costs, tech-industry leadership and, now, natural gas wealth, the U.S. seems primed for an export renaissance. There’s a snag, though: Emerging markets, home to hundreds of millions of potential consumers of made-in-the-U.S.A. products industry, are in a funk.

2. As emerging economies slow down, Europe could pick up some of the slack. That’s where the end of the recession in the eurozone could come in nicely. Europe’s consumers might be able to absorb at least a little bit of America’s exports potential and help tie over Uncle Sam while the Brics (Brazil, Russia, India, China, and South Africa) sort their many issues.

3. Consumers played a big role in helping return the eurozone to growth. One reason to believe that the revival in Europe might aid the U.S. recovery via trade flows lies in the fine print. It was growth in Germany and France in the second quarter of the year that propelled the eurozone above the zero-growth mark, and German and French consumers, in turn, gave their respective economies a considerable lift. That’s especially welcome news in the case of Germany, which has long relied on an outsized trade surplus, while keeping wages and consumption artificially low. The country might be moving away from that model now: Consumption is growing robustly and worker compensation is rising faster than inflation, while unemployment stays at historic lows. German wallets, it appears, might soon have a healthy appetite for foreign goods.

There are, of course, innumerable “ifs” and “buts” in this scenario. Much of the eurozone is still in recession. Outside the eurozone, the U.K. is struggling. Germany, for all the signs of rebalancing, still carries a considerable trade surplus. China’s slowdown might turn into a hard landing. All kinds of things could go wrong. Still, the end of the eurozone recession is a small step in the right direction.


Help for the Canadian economy? Yes, from Europe.

  1. LOL Poor ol Harp…can’t catch a break. And I’ll bet his shoulder hurts like hell too.

  2. When trading with Europe we have to be ready for boycotts based on their continuing belief that we all club “cute” baby seals to death.

  3. “The eurozone’s recession is formally over.” and later, “much of the eurozone is still in recession. “.

    Make up your mind.

    • Hi Hal,
      Taken as an aggregate, the eurozone is formally out of recession — thanks to growth in Germany and France, its biggest economies. If you look at the single countries, however, many (notably, Italy, Spain and Greece) are still in recession.

  4. You have to hand it to harper – ol Stevie boy has positioned us in one of the most strategic positions that we have been in a very long time – soon we will have signed on to the EU trade deal of this there is little doubt and then canadian companies can leverage this between the EU and NAFTA – as well the Pacific TPP will alllow us to do the same with Asia – quite brilliant really and the Yankees are far behind us – ol Stevie boy also is also going to be refocusing the Arctic Council and I can’t wait for some of the news Leona will be relaying soon – the best part though is that pretty soon we will be upping to by 3 million barrrels a day and no doubt within a few years we will have pipelines going in all directions and getting world price – once we start getting reasonable royalties Treasuries are going to be filling up every where and harper can get back to what he was doing before the Great Recession which for you haters out there if you are honest with yourselves just might recall he paid down the national debt 2 years in a row by a substantial amount in fact more than any other PM in a very long time – he also gave back more money to all the provinces and didn’t try to slay the deficit on the backs of the provinces like Martin – the man is a genius and within a few short years we are going to be benefiting in ways that boggle the mind – he will no doubt balance the books by the next election and then out coems a 10% tax break for everyone in middle – low income tax bracket as he did before when reduced fed tax 10%

    • The sum total of harpers economic plan is a pipeline. The people want value added industry and jobs from our raw resources but harper wants to export the jobs. Not really a genius by that reckoning. Alberta has been developing and exporting bitumen for decades, and they’re still running a deficit.
      Harper is an economist which means he knows one column from another yet he said walins books were just fine.
      Don’t be too disappointed though, he’s just as good as any we’ve had.

  5. There is no recovery in Europe, and I don’t expect there will be one for a long time, save for perhaps a few of the Eastern European countries. There is far too much government spending, taxation and regulation for any sustainable recovery in the bigger economies.

  6. To support my previous comment:
    Click on the growth tab.
    Growth: Latvia, Lithuania, Romania, Estonia, Slovakia
    Anemic growth in Poland, Bulgaria.
    Almost all Eastern, with the exception of tiny Luxembourg, tiny Malta, and Sweden, and anemic growth from the UK.

    The big and sclerotic heavily taxed and regulated economies, Germany, France, Spain, Italy: all negative and still shrinking. The death spiral of government spending, taxation and debt continues.

    • I suspect it won’t get better until the EU finally abandons the Euro and goes back to the original common market ideal: the free flow of goods and capital across a Continent of sovereign nations.

      I should qualify, that does not mean they cannot recover temporarily from the current mess. There could well be some sort of anemic recovery, or maybe even another period of strong growth. But I suspect the EU vision of a “united Europe” is doomed.

      • I think your opinion is a common sentiment and I do agree with it to a degree. But I believe that their bloated governments and excessive taxation are the real problem. All the lagging economies have governments that spend close to 50% of GDP. In other words, of every 2 euro of production in each country, governments spend 1. People work to support their governments at least as much as their own families. Governments do not exist to serve the people that are productive, instead the productive exist to support the governments. I think this is a recipe for stagnation. Just as communist countries gradually suffocated their economies over decades, excessively socialist countries will do the same, although it takes a while to suck the life out of once-vibrant private sector economies. Much of the problem lies in the fact that there is no capital for entrepreneurs or innovation for the natural cycle of economic revitalization to take place. Instead, euro economies are heavily reliant on their legacy large corporations to shoulder the load while new growth is stifled. The private sector is slowly being suffocated in those countries. There are no googles and facebooks in Europe, few successful biomedical companies, few successful new corporations of any kind. Another sign of the stifling of economic revitalization is the unbelievable levels of youth unemployment. Many European youth know their only hope for prosperity is to leave.

        The Euro just exacerbated the existing problems. Overly indebted governments that already consumed close to 50% of GDP in tax revenue had nowhere to go but into bankruptcy when they could not devalue their countries. There was no more leeway to raise taxes thanks to the Laffer curve, they were already close to the limit of tax revenue that the countries could produce, and not only that, the levels of government spending and debt were already excessive and eliminated any possible gain from Keynesian-style spending.

        Anyway, the fact that they had to devalue is the underlying economic problem. A devaluation is essentially a collective impoverishment, but since the pain is spread across the country and the victims are primarily foreigners, it can stave off disaster. So the Euro killed off that safety valve.

        Thanks to the Euro, the Euro central bank also exacerbated the problems by providing the same low interest rates to the unproductive economies as to the productive ones. So the Euro made bare their weaknesses. So did the recession. Productive economies can weather recessions. Stagnant economies cannot.

        That’s my two cents, anyway. I think they will not only need to kill the euro, but they will also need to revitalize their economies by shrinking government and taxes, which is nearly impossible to do when so many unproductive citizens have become dependent on the government largesse that their countries can no longer afford. That is the real problem in my opinion, the ongoing suffocation of capitalism by the ever-growing socialism. The eastern Euro countries do not have the same problems so there is room for growth. And funny enough, Sweden is one of the few heavily socialist countries that has taken steps to address some of the problems I’ve described, and they are experiencing some growth. But I have little faith in the big western European economies to escape stagnation, it’s just as much a problem of politics and culture as it is economics.