Euro-zone falls back into recession

Austerity protest

Plagued by seemingly perpetual debt problems due to large welfare states, the Euro-zone, the 17 countries that make up the European Union, has fallen into a recession for the second time since 2009:

The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday.

The French and German economies both managed 0.2 percent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.

Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2 percent drop in the second quarter.

Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.

A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery.

Analysts said even the euro zone’s top two economies were likely to succumb in the final three months of the year.

Greece has been a major sore spot for Europe. Austerity measures have been met by protests. And while plans for another bailout for the country are in the works, there is little hope that it will help ease the pain of the economic depression it is experiencing.

As noted, the welfare states in many of these countries have cause debt to rise to unsustainable levels. Back in May, Don Boudreaux noted over Cafe Hayek that, in 2009, government spending as a percentage of gross domestic product (GDP) in 12 Euro-zone countries ranged between 31.7% (Germany) to 50.7% (Greece). These levels of spending crowd-out private investment, and thus, slow economic growth.

Spending as a percentage of GDP in the United States was 26.3%. That has since fallen slightly, but the long-term picture looks bleak. In just 25 years (2037), spending by the federal government is expected to rise to 35.7% of GDP, driven by growth in entitlements, and our national debt will have surpassed levels we’re seeing in Europe today.

We may not yet be Europe, but our welfare state is leading us down that path. If you think the “fiscal cliff” scenario is a problematic, it really has nothing on what’s down the road if Washington continues to push meaningless reforms that don’t encourage economic growth.

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