THE interactive graphic above (updated November 10th 2011) illustrates the depth of the problems that the European economy faces. The euro-zone crisis reached a critical stage when Italy joined the seven per-cent club, the group of euro-zone countries whose borrowing costs (as measured by ten-year bond yields) have gone above 7% and stayed there. It public debts are close to 120% of GDP. Only Greece has a greater burden. Ireland’s is lower but it has a large budget deficit so is adding to its debt at a rapid pace. So is Britain but it has benefited from being a non-euro haven and can still borrow very cheaply.
Italy’s situation is not yet critical because the government does not have to refinance all its debts quickly at punishing interest rates. The average maturity of its public bonds is around seven years. Only in Austria and Britain is it longer.
GDP grew in most countries in the first half of 2011, though there were marked differences in performance. Germany was sprightly. So were the countries around with which it trades most heavily. By contrast GDP in Greece and Portugal has crashed under the weight of austerity. More recently, the crisis has sapped the strength of even the so-called “core” euro-zone countries. The strains of the euro area’s sovereign-debt crisis make a recession in the early months of 2012 likely.
In many countries unemployment has not gone up by as much as one might expect given the depth of the 2008-09 crisis. Germany has lower unemployment than it enjoyed in the boom years. The worst-affected countries include Ireland and Spain, where a collapse in construction has swollen the dole queues. Youth unemployment is especially high in Spain, prompting protests. Britain has fared better because its tight planning laws limited the growth of its construction sector during the global housing boom. But sluggish growth and the prospect of renewed recession mean that joblessness is rising again in Britain as well as in Germany.
AUDIO: Edward Carr, our foreign editor, explains why understanding the crisis in the euro zone requires a look at the unresolved nature of what it means to be European