ECONOMY

Europe's recession is over.

If there wasn’t quite a bout of spontaneous rejoicing in the continent’s streets yesterday, there was much relief among all those who concern themselves with matters economic.

That the unusually long funk in the economy of the euro zone came to an end in the second quarter of the year, as the bloc’s gross domestic product expanded by 0.3 per cent compared to the January-March period, means there is the hope that momentum will build and sustained recovery can take hold.

German and French muscle
The rate of increase was marginally ahead of forecasters' expectations because Germany and France, which together account for half of the zone's output, grew considerably faster than anticipated.

The 0.7 and 0.5 per cent rises respectively were well above what other, narrower economic data series were pointing to.

The boost means that some of the ground lost since the euro zone’s double-dip recession began at the end of 2011 has been recovered.

Although because it has only clawed back about one-fifth of that lost output, and the bloc’s economy is still a full 3 per cent smaller than at its peak in early 2008, there is a very long way to go before matters improve for people’s lives, particularly in the hardest-hit periphery.

While the GDP figure looks promising, it is just one key indicator: others need to be taken into consideration as well.

JOBS

More often than not analysts and journalists focus on the rate of unemployment when considering what is happening in the jobs market.

But this can give a less than rounded picture. Because that measure expresses the numbers unemployed as a percentage of those seeking work, it misses those who lose their jobs and leave the labour market.

A better measure of conditions is the number of people at work. Across the euro zone, total employment, at 140 million, has remained broadly stable since the crisis of the single currency erupted in 2010, having previously suffered a big fall during the “Great Recession” of 2008-2009.

Cross-zone stagnation
But if employment has stagnated across the zone over the past three years, labour market performance in the bloc's economies has diverged greatly.

While Germany has increased employment and France has kept the numbers at work steady, net employment in Ireland is an unprecedented 14 per cent below peak in 2007. Our employment collapse took place in 2008-2009, as the construction industry imploded and the economy went into freefall. But, as the chart shows, Irish employment has been much less affected by the euro crisis over the past three years than the other peripherals.

One in five jobs gone
In the three years to the first quarter of 2013, Spain was down 1.7 million jobs, bringing the total to almost four million since 2007. This amounts to almost one in five jobs disappearing. There is no sign of that momentum abating.

The labour market shocks in Greece and Portugal have been similarly massive and ongoing. In the three years to the first quarter of 2013, net employment in the two fell by 19 per cent and 11.5 per cent respectively, very firmly in the territory of the Great Depression of the 1930s.

INDUSTRY

Although services provision dominates all modern European economies, making stuff still matters a lot. Industry generates more exports than services, and it continues to account for a big chunk of total employment in Europe.

Tuesday’s news that the continent’s factories were churning out more widgets in June came as a welcome relief and a further sign of incipient recovery. A monthly increase of 0.7 per cent in the euro zone pushed industry’s output to its highest level since the end of last year.

Ireland's monthly spike in production of nearly 9 per cent in June was the highest among the 28 EU member states, although this economy's figures are unusually volatile.

PUBLIC DEBT

The past half-decade of crisis has blown a hole in the public finances of almost every developed economy. Government debt levels have jumped by amounts never seen before in peace time. For those countries that went into the crisis with already high levels of debt, such as Greece, it has proved unsustainable. For those that have suffered the most severe recessions, such as Ireland and Portugal, bailouts have been required.

Undoing the damage to the developed world’s public finances will take many years. And that is at best. With debt levels still rising in most countries, there is a real risk that others will follow Greece into default. The Mediterranean remains a focus of attention.

In the first quarter of this year, Italy’s public debt surpassed the 130 per cent of GDP threshold for the first time. With its economy contracting and the government adding to its €2 trillion-plus debt as it spends more than it takes in tax, time is running out.

Italy in peril
When Lehman Brothers fell, it had debts one-sixth those of the Italian state. The effects of that default are well known. A default by Italy would be the biggest shock in financial history, with tectonic results.