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Green shoots show in Europe

The euro zone is finally out of recession, but hold the Champagne for now.

Euro symbol 08 14 2013Enlarge
The euro zone's best-case scenario is a long, slow recovery with unemployment across the south remaining persistently high. (Daniel Roland/AFP/Getty Images)

BRUSSELS, Belgium — It's official.

The euro zone has clambered out of recession for the first time in 18 months with a surprisingly high 0.3 percent growth in the second quarter of 2013.

Germany led the charge as expected registering 0.7 percent growth, but it was given strong support from France, whose 0.5 percent expansion exceeded expectations.

Both countries are now growing faster than the United States, which recorded 0.4 percent in the second quarter — although US year-on-year growth remains stronger.

The news provides another boost to German Chancellor Angela Merkel’s re-election hopes. She’s already riding high in polls ahead of the national vote on Sept. 22.

French President Francois Hollande will be even more relieved as he battles record-low approval ratings dragged down by his failure to turn the economy around.

"I welcomes this very sharp rebound in growth," French Finance Minister Pierre Moscovici said. "This figure exceeds the available forecasts, confirms the end of the recession in the French economy that was already hinted in the recent figures for industrial production, consumption and trade."

Despite the good news, few in Europe are cracking open the Champagne.

The data released Wednesday showed continued deep divergences between north and south, but there were encouraging signs even in the countries hardest hit by the debt crisis.

Spurred by a surge in exports, Portugal shocked analysts by posting the euro zone's highest quarterly growth of 1.1 percent after 10 successive quarters of contraction. Although Italy and Spain continue to see their economies shrink, the rate is slowing.

Olli Rehn, the European Union's top economics official, said this summer marked "a potential turning point in the EU economy." But he cautioned against euphoria.

"There is no room for any complacency whatsoever," blogged Rehn, the EU's economic and monetary affairs commissioner. "I hope there will be no premature, self-congratulatory statements suggesting 'the crisis is over.' For we all know, there are still substantial obstacles to overcome."

Rehn is painfully aware that even if decline in gross domestic product has reached bottom, the euro zone's best-case scenario is a long, slow recovery with unemployment across the south remaining persistently high.

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Even that plod out of recession is fraught with risk: The banking sector in southern countries remains painfully weak; the International Monetary Fund is warning Greek will face a budget shortfall of $4 billion next year and an even bigger hole in 2015; debt levels in Greece, Portugal, Italy and Ireland remain perilously high; and governments in all the southern countries look shaky amid worries their collapse could sink reform programs and send investors fleeing.

"I don't think we should we say with any degree of confidence that we've turned the corner," says Ebrahim Rahbari, European economist with Citigroup in London. "It's certainly good news, but one quarter of positive growth really doesn't solve very many issues. Some issues are becoming somewhat less acute, but there are still very many points of fragility." 

http://www.globalpost.com/dispatch/news/regions/europe/130814/euro-zone-crisis-europe-recession-over