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The double-dip recession as a Eurozone policy failure


The Spanish Economic Association (, from it Spanish acronym AEE) has introduced its own version of the business cycle dating pioneered by the US National Bureau of Economic Research. Here I look at the business cycle dating by NBER and AEE, as well as the Eurozone business cycle dating by the CEPR. My conclusions are:

  • the 2008 recession in Europe is indeed a knock-on effect of the US subprime crisis
  • Zapatero was right when he said on the campaign trail for his March 2008 re-election that there was no recession in Spain
  • bank failures in the Eurozone are a consequence of recession and not the other way around
  • automatic stabilizers and stimulus worked in 2009
  • the sovereign debt crisis was entirely artificial and manufactured
  • the second dip of the Spanish recession was caused by Zapatero bowing to Eurozone pressure and instituting austerity
  • the second Eurozone recession was caused by Trichet’s ‘impeccable’ rate raises in 2011
  • the end of the Spanish recession was helped by the European bank rescue of 2012
  • Draghi’s extraordinary monetary policy measures have not been enough to pull the Eurozone out of recession but have prevented it from getting worse

There is a timeline at the bottom of this post so you can draw your own.

In short, the conventional definition of recession is two consecutive quarters of negative real GDP growth, which allows an economy in disarray which registers zero growth every other quarter to be declared “out of recession” (and politicians can be reliably expected to do just that). As this is patently a joke, NBER decided to set up a committee which looks at a number of economic indicators in addition to GDP and retrospectively (given the inevitable delay involved in giving careful thought to such things) dates the peaks and troughs of the economic cycle. They then define a recession as the period between the months (or quarters) from one peak to the immediately following trough, both inclusive. The NBER business cycle dating is considered reliable by the economic community and it is standard practice to shade NBER recessions in economic time series (for instance, the St. Louis Fed’s FRED economic statistics do just that). The Centre for European Policy Research has also adopted a similar methodology to date the business cycle for the Euro Area. So, what do these institutions tell us about the consequences of the global financial crisis now in its (gasp!) eighth year? The NBER says

The determination that the last expansion began in June 2009 is the most recent decision of the Business Cycle Dating Committee of the National Bureau of Economic Research.

while the CEPR in its last release in June 2014 said

Had the improvement in economic activity been more significant, it is likely that the Committee would have declared a trough in the euro area business cycle in early 2013, most likely in 2013Q1. The lack of evidence of sustained improvement of economic activity in the euro area does, however, preclude calling an end to the recession that started after 2011Q3. Rather, consistent with the concerns expressed by the Committee at its October 2013 meeting, the euro area may be experiencing since early 2013 a prolonged pause in the recession that started after 2011Q3.

What’s important to note here is that according to CEPR the Eurozone experienced a five-quarter recession from 2008Q1 to 2009Q2, which parallels the NBER’s last recession from 2007Q4 to 2009Q2, though it is significantly shorter. However, there is no US parallel to the Eurozone recession that started in 2011Q3. As to Spain, the AEE dates a recession from 2008Q2 to 2009Q4, followed in quick succession by a second recession from 2010Q4 to 2013Q2. They write

España entró en recesión en el segundo trimestre de 2008 (2008T2), fecha que supone un cierto retraso con respecto a lo acontecido en EE.UU. y en la mayoría de los países de la Unión Europea. La economía española mostró signos de recuperación al inicio de 2010 (2010T1), volviendo posteriormente a entrar en una fase recesiva a finales de dicho año (2010T4), como consecuencia del estallido de la crisis de la deuda soberana. Con los últimos datos oficiales disponibles hasta la fecha, todavía sujetos a revisión por parte del Instituto Nacional de Estadística, el Comité ha establecido que el final de esta segunda recesión tuvo lugar en el segundo trimestre de 2013. Ello implica que los signos de recuperación, cada vez más evidentes, se remontan a hace casi dos años, confirmando que, dentro de los países de la periferia del área del euro, la economía española ha sido una de las primeras en dejar atrás la fase de caída generalizada en la actividad económica y retomar un crecimiento positivo.

Freely translated:

Spain entered recession with a certain delay relative to the US and the rest of the EU countries, and after recoveding it returned to recession as a result of the European sovereign debt crisis. Signs of recovery date to nearly two years back, confirming that Spain has been one of the first peripheral economies to leave recession behind.

Note that the latest phase of recovery in Spain parallels what the CEPR calls a “prolonged pause in the recession”. Below is a timeline with the key dates and events highlighted. Draw your own conclusions.

date US Eurozone Spain
2007Q3 Minsky moment
2007Q4 start of US recession
2008Q1 start of Eurozone recession
2008Q2 start of Spain recession
2008Q3 Lehman moment Fortis, Dexia, Ireland crisis
2008Q4 Zapatero ‘Plan E’ stimulus
2009Q1 Obama stimulus
2009Q2 end of US recession end of Eurozone recession
2009Q4 end of Spain recession
2010Q1 Greek debt crisis
2010Q2 Zapatero austerity
2010Q4 start of Spain recession
2011Q2 Trichet raises rates
2011Q3 start of Eurozone recession
2011Q4 Draghi LTRO
2012Q2 Bankia failure
2012Q3 Draghi “whatever it takes” Spanish bank rescue
2013Q2 ‘pause’ in the EZ recession end of Spain recession

From → Austerity, Eurozone

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