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Economists Theorize Eurozone May Experience Triple-Dip Recession
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Economists Theorize Eurozone May Experience Triple-Dip Recession

Economy

Economists Theorize Eurozone May Experience Triple-Dip Recession

Economists Theorize Eurozone May Experience Triple-Dip Recession
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To find out what's going on with the economy, Rachel Martin talks to David Wessel, director of the Hutchins Center at the Brookings Institution and a contributor to The Wall Street Journal.

RACHEL MARTIN, HOST:

The U.S. economy appears to be healing slowly from the Great Recession, but the European economy not. When economic officials from around the world gathered here over the weekend, there was even talk of a triple-dip recession. To learn more about this and the implications, we turn, as we often do, to David Wessel. He's the director of the Hutchins Center at the Brookings Institution and a contributing correspondent at The Wall Street Journal. Good morning, David.

DAVID WESSEL: Good morning.

MARTIN: OK, triple-dip recession. That does not sound like a good thing. What's happening in Europe?

WESSEL: It's not a good thing. So the Eurozone, the 18 countries that share the common currency the euro, joined the United States in the Great Recession in 2008, the one provoked by the housing bust here and subsequent financial turmoil. Then, Europe stumbled into a recession of its own making in 2011, when there were doubts about whether its governments could pay their debts. And there was even doubts whether the euro itself as a currency would survive.

As is so often the case in Europe, though, they muddled through, avoiding catastrophe, returned to growth in early 2013, but are struggling with such slow growth that unemployment is above 11 percent in the Eurozone and as high as 25 percent in Spain.

And now with the adverse side effects of Ukraine and the blockade on Russia, some disappointing data from Germany, which is the big economy in Europe, of course, there are worries, as you said, that Europe is at risk of falling back into a recession. The International Monetary Fund marked down its forecast for Germany, France and Italy. And it puts the odds of a Eurozone recession over the next year at 40 percent, which is pretty high as these things go.

MARTIN: OK, so how does Europe prevent that from happening?

WESSEL: Well, the IMF has been pushing the European Central Bank, their equivalent of the Federal Reserve, to be more aggressive, to launch a big program of bond-buying like the one that the Fed did here, particularly because inflation in Europe is a very low 0.3 percent. France wants relief from its promises to bring its budget deficit down, and Italy's applauding that.

There's a very loud chorus calling on the German government to both increase public investment spending on both infrastructure and stuff like that and to maybe cut taxes to encourage more business investment there. The five major economic institutes in Germany recently said that Germany's economy was stagnating and that the government needed to worry less about debt and deficits and more about public investment. But the finance minister, Wolfgang Schauble, has been really not happy about those suggestions. The Wall Street Journal quotes him today as saying that there's no reason for any nervous, hysterical hyperbole, and so now they're just kind of, you know, muddling through as they often do.

MARTIN: So what does this mean? We know we live in a global economy, but explain how what's happening in Europe matters here.

WESSEL: Well, the Eurozone is a very big part of the world, and it accounts for about 12 percent of the world economy. So when you add up the world economy - it's Europe, the U.S. and China - you get a big chunk of economic activity. Europe is a big market for U.S. exports, particularly important for U.S. multinational companies and mostly a recession would be really bad timing because except for the U.S. and the U.K., the rest of the world seems to be slowing down. The head of the IMF, Christine Lagarde, warned this week about - over the weekend about a new mediocre, where growth is low and uneven, and it's all terribly disappointing because there've been widespread hopes that finally the global economy was picking up momentum.

MARTIN: New mediocre, doesn't sound like a good thing. What does all this mean for the short- and long-term here at home?

WESSEL: Well, a triple-dip in Europe certainly isn't a plus for the U.S., and the recent weakness in the stock market is one indication that these worries about the global economy are weighing on investors. But we're a very big market for our own goods and services, and our banks are healthier than Europe, our budget-deficit is coming down and we finally seem to see a little bit of momentum. We have a lot of chronic problems, but the short-term outlook looks better than it has for some time.

MARTIN: We'll take that. David Wessel is with the Brookings Institution, a contributing correspondent at The Wall Street Journal as well.

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Correction Oct. 14, 2014

Our guest mistakenly says that the eurozone population "is about a third of the world's population." In fact, the combined population of the 18 European nations that make up the eurozone is 337 million.

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