IMF Predicts Europe's Economic Growth Will Continue To Be Weak

The U.S. economy is recovering slowly. Europe's economy is doing much worse. David Greene talks to David Wessel of the Brookings Institution, who is back from a European Central Bank forum.

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DAVID GREENE, HOST:

The U.S. economy has been recovering from the 2008 financial crisis, but it has been slow and painful, as many Americans know all too well. Europeans have been feeling the pain as well. The recovery there has been even tougher, and that's had political implications in Europe - and it could affect our economy, as well. Let's turn, as we often do, to David Wessel. He's director of the Hutchins Center at The Brookings Institution and a contributor to The Wall Street Journal. He is just back from attending a meeting of Europe central bankers where, I imagine, David, they are dealing with this tough new reality. Let's begin with the basics. I mean, how - how is the European economy doing?

DAVID WESSEL: Well, as you said, David, they're doing poorly. In the 18 countries that share the euro, unemployment's at 11.8 percent. And inflation is running at just 0.7 percent, which is well below the European Central Bank's target of under 2 percent.

GREENE: Yeah, it's really low.

WESSEL: In Spain, one quarter of those between ages 18 and 29 are what they call NEET, N-E-E-T - Not in Employment, Education or Training. The banks aren't lending to small and medium-sized countries. Over the last year, the European economy has grown just 0.9 percent. That's less than half the pace that the U.S. economy has grown, despite the disappointing numbers for the first quarter.

GREENE: OK, so you were at this meeting of the European Central Bank, in Portugal. How sour is the mood?

WESSEL: It was pretty troubled because in elections earlier this week for the European Parliament, there was a lot of votes for parties that are critical of the whole idea of the euro, the common currency, and of further integration of European economies. The president of the European Commission, Manuel Barroso, was there. And he blamed this, as a large part, on the inability of European leaders to deliver growth and jobs to the people. It's pretty clear that the elites' and the government remedy of more Europe - a more, less important national borders, isn't going over well with people who don't have jobs or aren't seeing their wages go up.

GREENE: So this sent quite a message to European governments. Do governments in Europe - or the European Central Bank - I mean, any plans to do anything to - to get growth going again?

WESSEL: Well, a little bit. The governments, much more so than in the U.S., have been pursuing austerity. That is, they've been cutting spending and, in some cases, raising taxes. Now, some countries - Spain, Portugal, Ireland, Italy, Greece - have been forced into this because they couldn't borrow money anymore without cutting their budgets - doing a lot of belt-tightening.

And the stronger countries - Germany, in particular - just aren't willing to spend more, despite pleas from the International Monetary Fund, the U.S. and some of their neighbors. So that has put a very heavy burden on the ECB, which is the equivalent of the Federal Reserve. Now, it hasn't been as aggressive as the Fed, but there are widespread expectations that it's going to do something next week, when it meets on Thursday. And interestingly, one of the things on the table is what's called negative interest rates - where they would actually charge a fee to banks, instead of paying them interest, if they put money at the European Central Bank. The idea is that that would give the banks a little more nudge to lend money to people.

GREENE: Well, whatever the ECB does, and whatever happens in Europe - I mean, it's worth watching - right? - because this could affect our economy.

WESSEL: Absolutely. The European Union - that's the 18 countries that share the euro and nine others that have kept their own currencies, including the United Kingdom - is roughly the same size as the entire U.S. economy. Now, that's a pretty big chunk of the world economy. So when they do lousy, we sell less to them. And about $1 of every $5 in U.S. exports goes to Europe. And then, on top of that, many big U.S. companies make stuff there and sell there, and so they're doing badly when Europe is sagging.

GREENE: Alright David, thanks as always.

WESSEL: You're welcome.

GREENE: David Wessel is director of the Hutchins Center at The Brookings Institution and also a contributor to The Wall Street Journal.

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