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Is it the end of the European crisis?

Politicians say the eurozone is recovering, but poverty and unemployment persist.

Last Modified: 10 Jul 2013 15:44
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The eurozone has been plagued by economic woes since the global financial collapse in 2008 [EPA]

The crisis in Europe is over.

So declared beleaguered French President Francois Hollande on a trip to Japan in June. His voice has also been joined by those of Herman Van Rompuy, president of the European Council, and Jose Manuel Barroso, head of the European Commission - both major players in pulling the eurozone out of its financial black hole.

More recently, however, the unravelling of the economy in Portugal, a country that has faithfully implemented the austerity demands of the European Union, indicates their statements may be far from the truth - with Barroso seeming to lose some of his optimism.

The eurozone has been plagued by economic woes since the global financial collapse in 2008. Infighting between member states has exacerbated the problem and delayed vital policies from coming into effect - such as the EU budget, agreed at the 11th hour after a series of compromises.

The 17 eurozone countries use a common currency, but do not have a common government. As a result, the countries often pull in different political directions. Countries with weaker economies resent the performance of the area's stronger ones, who in turn resent bailing out their struggling neighbours. And economically uncompetitive countries, such as Greece, cannot boost exports by devaluing their currency, which they could have done before adopting the euro.

Germany's economy remains strong, with an unemployment rate of just 5.4 percent as of April 2013 - though sluggish growth is forecast through 2014. But when compared to Portugal, where unemployment has reached 17.6 percent; and Greece, where 26 percent are out of work, it is easy to see why anti-German sentiment is growing within Europe, especially with German Chancellor Angela Merkel's persistence in pushing for strict austerity policies across the continent.

Austerity 'not sustainable'

Jo Brace, the manager of Elia Hotel & Spa in Chania, Crete, has lived in Greece for 27 years. "The austerity measures for this country are not sustainable for the majority of people living here," she told Al Jazeera, "and have created extreme poverty and dramatic life changes to so many living in this country".

For Brace, the idea that the crisis is over seems absurd, with unemployment and poverty rates remaining high in Greece and elsewhere in the EU.

"New taxes are springing up constantly to try and scrape as much together as possible, rocketing most people into strife and poverty," she said. "Unemployment is the highest it has ever been and salaries and pensions have been to cut to about half of what they originally were - not enough any more for most to pay their rent, mortgages, inflated bills and feed their families."

Inside Story - Is austerity undermining democracy?

By some measures, the early months of 2013 brought hope as financial markets recovered and growth initiatives seemed to take hold.

Yet political economist and author Yanis Varoufakis told Al Jazeera the rosy view being presented is not sustainable because even if financial markets may be improving, the "real economy" that produces goods for day-to-day life continues to struggle.

"The seeming stability of the markets is not sustainable in the long term. It is just making it possible for certain countries to refinance themselves," he said. "When it comes to real economics, the tectonic plates are shifting underneath the surface."

Varoufakis said he believes the gap in economic performance between the eurozone's countries is worsening, making the monetary union impossible to sustain.

Noting that industrialised northern Italy is suffering from recession and falling demand while nearby Austria remains healthy, Varoufakis said: "Italy is not going to sustain this for a long time. They have a proud tradition of manufacturing, and are not going to allow this to go on for infinity. One day they will say 'enough.'"

Austerity policies championed by countries such as Germany actually worsen Europe's financial woes, he argued. "As GDP falls faster than necessary, the government's tax take falls and, thus, even though public expenditure has been reduced, the deficit does not come down as much as it was expected. In fact, it may even rise."

Speaking to Al Jazeera, Germany's Vice Chancellor and Labour Minister Ursula von der Leyen defended her country's fiscal policies, addressing the idea that anti-German sentiment is growing as a result of its economic success.

"I always feel that Germany is just a part of Europe, so if Europe is doing well, then Germany is doing well too," she said. "We care about money, budget, people and we care about confidence in sustainability."

Lack of political unity

Professor Iain Begg of the London School of Economics identified the biggest problem with the eurozone as its lack of political unity.

"When people ask why Europe doesn't act to solve this problem, the answer is that it is a loose confederation of countries and there isn't one common purpose. Any resolution, therefore, is a result of complicated negotiations and compromise and the end result does not really suit anyone.

"The median German, if there is such a person, thinks that all Greeks are lazy and so they don't want to bail out Greece. The average German is relatively comfortable in terms of employment, and so they don't see the urgency of the crisis resolution," he said. "In Greece, the attitude is that it is nothing to do with them and it is the Germans' fault [for imposing the austerity measures] - which, bluntly, is nonsense."

Yet Begg said the worst has passed for the eurozone. "The argument that the crisis is over rests partly on the gradual coming together of a new governance framework, but is also because a fair amount of economic rebalancing has taken place - with countries like Spain and Greece having gone quite some way to restore their competitiveness," he said. "All this make it more likely that the eurozone economy will return to growth in the second half of this year."

Begg points to a blueprint for recovery devised by the European Commission, made up of four main components: an integrated financial framework or banking union, an integrated budgetary framework or fiscal union, closer economic coordination, and greater political unity within the eurozone.

"Their overarching purpose is to enhance the governance of the euro area and to correct the flaws in pre-crisis monetary union," said Begg.

Follow Philippa on Twitter: @Flip_Stewart

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Al Jazeera
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