Conventional wisdom (sovereign debt crisis and austerity measures) or oil as the cause? Steven Kopitz Oil says:
The reasons for the severe recession in Europe between the fourth quarter of 2011 and the first quarter of 2013 remain unexplained in the policy community. Or more precisely, the proposed explanation is not convincing. … Oil prices are back at highs again, with Brent regularly trading between $100 and $115. As a result, oil consumption in the U.S. and Europe began to decline, and this decline in oil consumption due to high prices—often referred to as an oil shock—invariably led to a recession. …suggesting that the Greek financial crisis could lead to a recession in Europe is not entirely convincing. Greece’s GDP is 2% of the EU’s. It’s like the financial crisis in Indiana that devastated the U.S. economy. It’s conceivable, but it doesn’t jump out.
Here is a graph of Eurozone real GDP versus nominal oil prices (Brent):
figure 1: Eurozone 19 GDP million Ch.2010 EUR (blue, left logarithmic scale), oil prices (Brent), USD/barrel (brown, right logarithmic scale). CEPR defines the peak-to-trough recession date, shaded in grey. Source: Eurostat via FRED, EIA, CEPR.
This is a picture of the sovereign difference between Spain and Italy (GIIPS). Note that I do not include Greek spreads.
figure 2: GDP of 19 Eurozone countries in millions of EUR 2010 (blue, left logarithmic scale), Spain-Germany 10-year sovereign bond yield spread (red, right scale), Italy-Germany spread (green, right scale), all in % is the unit. CEPR defines the peak-to-trough recession date, shaded in grey. Source: Eurostat via FRED, OECD via FRED, CEPR.
My interpretation of Figure 2: GIIPS is forced to tighten policy due to concerns about debt unsustainability, leading to higher default risk premiums, making debt sustainability even less credible. In the end, austerity turned out to be austerity (no expansionary fiscal austerity). Growth will only resume when the ECB intervenes to cap yields. Oil is not the main factor in any explanation I’m aware of (except Mr. Coptis).In other words, I would say that the reason for the 2011-13 Eurozone recession was no Unexplainable in policy circles.
more discussion here.
