For Europe’s Economy, a Lost Decade Looms

The following is an excerpt from an article in 

The New York Times
Friday, August 17, 2012

For Europe’s Economy, a Lost Decade Looms

By JACK EWING

FRANKFURT — The euro zone is hurtling back into recession, economists declared after official figures this week portrayed a shrinking economy. But by some measures the downturn has been under way for years.

With the exception of Germany, none of Europe’s biggest economies have returned to the level of economic output they had at the beginning of 2008, before the subprime mortgage crisis in the United States spread across the Atlantic, according to calculations by two U.S. economists, Peter Rupert and Thomas F. Cooley.

The figures suggest that Europe is already well into what could become a lost decade — a period of pernicious stagnation and wasted potential that could have lasting effects on ordinary citizens.

Economic growth not realized represents investments in education that were never made, research that was never financed, businesses that failed and careers that ended too early or never got off the ground.

“There are larger implications that people don’t think about,” said Mr. Rupert, a professor of economics at the University of California, Santa Barbara. “There is a huge decline in human capital.”

Just what marks the beginning and end of a recession is not always easy to define. One common definition is two consecutive quarters of falling output. By that standard, the euro zone is technically not yet in a recession.

Most economists agree, though, that a recession is also defined by other indicators like unemployment, industrial production and investment. The closest thing Europe has to an arbiter on the question is a committee of prominent economists convened by the Center for Economic Policy Research, a research organization in London.

By the committee’s reckoning, the euro zone’s last recession ended after the second quarter of 2009, the point at which the region hit bottom and began to grow again. The economists’ panel, known as the Euro Area Business Cycle Dating Committee, has not yet begun to consider whether the euro zone is in recession again. But few people would argue that Europe, stricken by a self-inflicted debt crisis that began in 2010, has basked in prosperity recently.

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