The two Europes, in one chart

May 9, 2013

The euro zone economy is a mess. Here's the clearest expression of that conclusion we have seen, from an excellent Gavyn Davies piece in the Financial Times

Source: Financial Times
Source: Financial Times

It shows that in "core" non-stressed euro zone countries -- think Germany, France, the Benelux countries, Austria and Finland, the unemployment rate remains in the same ballpark as it was before the crisis. Maybe not the best of times, but certainly not the worst of times.

In "stressed Europe" -- under this definition Greece, Portugal, Ireland, Spain, Italy, Cyprus, and Slovenia -- unemployment has been skyrocketing toward 20 percent. If you're the European Central Bank, you have the unenviable task of setting interest rate and credit policy for both of types at the same time, even though tighter money might make perfect sense for core Europe while looser money is very much needed in the periphery.

As Davies writes, "The eurozone is engaged in a race between the gradual pace of internal devaluation and the mercurial nature of democratic politics. It is still not obvious how this race will end."

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