Code Assignment: The Eurozone vs. the United States
Sciences Po - Macroeconomics: Evidence, Theory and Policy
The Assignment
There is currently a strong controversy as to whether Europe is currently losing ground to the U.S. and if so, how much that is the case. Read this article1 by Arnaud Leparmentier: “In 2008, the Eurozone and the US had equivalent gross domestic products (GDP) at current prices of $14.2 trillion and $14.8 trillion respectively (€13.1 trillion and €13.6 trillion). Fifteen years on, the Eurozone’s GDP is just over $15 trillion, while US GDP has soared to $26.9 trillion.” There are some additional readings at the end of this assignment.
Replicating
Where is Arnaud Leparmentier’s data coming from? Plot the data, both in values and using an index 100 for 2008, to see the percentage increase. Also take Europe as an index 100 in 2008, to see how much the difference between Europe and US has changed.
Arnaud Leparmentier’s data are from the International Monetary Fund (IMF), as they were reported on the Wall Street Journal article he mentioned at the start of his analysis. He commented the differences in GDP at current prices in billions of USD - which means that the values are not adjusted for inflation as it is done with GDP expressed in constant prices - between the US and the Euro Area, highlighting how strong the Atlantic gap would be apparently growing.
He also mentioned another set of data, a ranking produced by the European Centre for International Political Economy with World Bank data showing how European Union member countries 2021 GDP per capita - measured in 2017 US international dollars at Purchasing Power Parity (PPP) - compare with US States ones. The latter in particular may shock us as we learn that Italy and France, two of the three largest EU economies, are in the bottom of the ranking, whilst the other one, Germany, is “richer” than twelve US States only.
It is not the first time that data such as those presented by Leparmentier raise doubts about a possible - economical - decline of Europe with respect to the United States, but is everyone correctly interpreting data or should we be worried about this new wave of economic disinformation and alarmism? In order to evaluate the situation, I will go more in-depth in all these data, analyzing the actual economic performance of the US and the Eurozone, by adopting a comparative approach.
Some premises. To simplify the writing, I will sometimes refer to “Europe” or “Europeans” instead of Euro Area or Eurozone, but this analysis will focus on the latter, unless otherwise clearly specified. To avoid any misunderstanding, it is worth recalling that even if in some occasions I will talk about “countries”, the Eurozone is obviously not a country, but just a way of referring to the group of European Union member States which officially adopt the Euro as their currency2. Even if some countries joined the currency union later, the data for Eurozone I selected and commented always include these twenty countries, as they have been adjusted a posteriori over time; this could be considered as a possible bias of the analysis as being versus not being in the Euro Area could influence a country’s economic growth, so that just aggregating the figures would not always provide us with a reliable overview of reality. A due clarification about the choice of dates: when possible, I tried to present in my graphs the whole series - from their starting point - as they appear on the sourced databases, to give a meaningful context to data. Also, as I realized most of my graph with the package plotly to make them interactive, I suggest to look at this file in the HTML format.
I started by extracting the needed data from the IMF website, converting them from JSON into a R data frame.
Here is the data from the IMF plotted on a graph, where the purple background points out predicted data from 2024 to 2029, that have just been released.
It is true that by simply looking at this plot, we could think that Europe is stagnating whilst the US economy experienced some sort of “boom” in the post-crisis years. In fact, as mentioned above, Leparmentier analyzed GDP at current prices in USD, insisting on how the gap between the Eurozone and the US exploded between 2008 and 2023. As we measure GDP in USD, it means that the European figures - expressed in EUR - had to be converted to USD, whilst American ones had not; this could eventually lead us to being interested in investigating the impact of the floating exchange rate on this data. Furthermore, it is worth noting that for such comparisons we usually prefer GDP at constant prices, which takes into consideration the effect of inflation, therefore providing a more accurate overview.
We could also ask ourselves why Arnaud Leparmentier chose to focus on a comparison precisely between 2008 and 2023, the former being the year which symbolizes the start of the Great Financial Crisis in Europe, when, as we can clearly see, the European GDP peaked just before the collapse due to the impact of the crisis. That is the reason why, usually, 2008 is purposely chosen as the starting point by those who want to stress on an alleged poor performance of the European economy.
In the following plot, we can take a look at the data adjusted on a \(log\) scale, which should help making our analysis of the US GDP growth less distortive. While this growth seems more linear, it could still be considered as impressive if compared to the Euro Area one.
To get an idea of the extent of this economic expansion, we can index our data, setting the 2008 figure as 100 for both the US and the Eurozone.
As we have seen in the previous graphs, in 1991 both economies share a similar starting point, but while the US enjoyed a steady and stable growth until 2008, Europe’s growth was initially slower and inconstant, to then apparently impressively accelerate between 2002 and 2008, years of the adoption of the single currency (which significantly appreciated with respect to the USD over the time frame concerned), along with the major EU enlargement (not of the Euro Area) to date; we may suppose the gained economic integration with the ten new members could have had a positive impact on the Eurozone economy. Back to our main focus, we can see how the Eurozone economy took thirteen years to completely recover from the 2010s crises (both the long-lasting effects of the Great Financial Crisis and the subsequent European Sovereign Debt Crisis). Only in 2021, Europe reached again the same 2008 peak GDP level, whilst the US recovered in 2010 and started taking the lead, so that in 2023 the US are already at 185,23% of their 2008 GDP, whilst the Euro Area is stuck at just 109,33%.
We can also index in an alternative way, by setting the 2008 Eurozone figure as 100.
This way, we see at which extent the gap between the two increased from a mere 3,88 in 2008 to an impressive 83,08 percentage points in 2023. Again, the story told by Le Monde and The Financial Times would not sound coming out of nowhere.
Basically, we can manipulate this data as we like, but they will always show anyway that Leparmentier is right and that what he affirmed actually corresponds to the reality. But what if the data he chose are biased, as I argued in the previous paragraphs? We may question his choice by analyzing other type of GDP data, therefore extending our study.
Extending
What if you take into account population and or employment growth? Does it change the result much?
We can broaden our analysis by taking into account population and employment growth. First of all, I took some data from the World Bank to have an insight in these trends.
As we can see, even if the Eurozone still has a higher population than the US, the latter has been growing much faster over the last years.
For what concern the labor force, the gap was largely in favour of the Eurozone in the early 1990s, but the US increased rapidly. Both have experienced a similar growth pattern between 2000 and 2015, when the US started accelerating. Since 2021, in the post-COVID era, both are again increasing parallelly, even if the Eurozone slowed down in 2023, whilst the US did not. Today, they both have a labor force of about 171 million people. As we will see in more detail below, this means that US workers have always been more “productive” than European ones, as the US GDP was higher even with a smaller workforce. Nevertheless, it is worth noting that the data for the Euro Area have been aggregated a posteriori, and part of these workers lived in countries which were less-developed economically in the 1990s due to the Communist regimes they were governed by. Therefore, probably the gap in productivity was less important than what we may think by looking at this graph.
To get a more accurate panoramic of the labor markets in both areas, I also looked at the unemployment figures, from the World Bank database.
Due to important institutional and social discrepancies, structural unemployment - and therefore the natural unemployment rate - are notably different in the two areas, so that unemployment has always been lower in the US than in Europe, except for 2020, when European workers were granted much more protection to face the COVID crisis than American ones. The US labor market may be described as more dynamic, which could be considered by some as one of the elements that fostered last years economic growth, even if the European more stable and safer one has its advantages as well.
As we are interested in analyzing GDP, we can take a look at the evolution of GDP per capita (GDP divided by the number of citizens of a country). Given the information we saw on population, we should not expect an important variation with respect to the GDP analysis we made above. I retrieved the data from the World Bank database again.
Considering GDP per capita at current prices, we see how the trend is pretty similar to that of GDP commented by Arnaud Leparmentier in his article, except for the fact that the Eurozone at its 2008 GDP per capita peak was furthest from the US figure than it was in the case of GDP.
Another interesting figure to look at is GDP per employed person (GDP divided by the number of national workers). The World Bank only provides data at constant 2017 USD at Purchasing Power Parity (PPP), a GDP measure which is different from the one we used above, as the figures are adjusted to take into account both inflation (they are all expressed in 2017 USD) and the differences in the cost of living (which the PPP formula tries to account for).
The graph confirms that the gap between the US and the Eurozone is growing, but, according to these data, this process actually started in 1994, and not in 2008. Again, the US growth still looks pretty impressive if compared to the European one, but this would at least partially refute the idea that Europe is currently becoming poorer as we are losing ground to the Americans, as this difference in productivity would not be something new, but a process which dates back to the end of the 1990s. If we have been experiencing impoverishment for the last twenty-five years at least, we could ask ourselves why have economists not emphasized this narrative before.
As the methodological change I mentioned is one of the reasons for which this plot tells us a different story, it is important to stress on the fact that data can be calculated and manipulated in many ways, so that we should always know precisely what type of figures are being presented to us, and be able to double-check them where necessary.
To test this, I decided to create a new database which joined the data I had on GDP at current prices and on the labor force, to calculate GDP per employed person at current prices.
By looking at the graph, we immediately recognize the same trends we identified in the first plots, which again would support Leparmentier’s statements. This was just an example to see how much can we make things look different in Macroeconomics by changing just a few parameters.
Robustness?
Use other measures of GDP in order to assess the robustness of Leparmentier’s findings. Plot the results you obtain.
As anticipated above, the way we measure GDP can really have an impact on the interpretation we give of data. Here I will provide some other examples in order to assess the robustness of Leparmentier’s findings.
The main ways of measuring GDP are in current prices and constant prices. The former is just the nominal GDP calculated at the end of each year (usually measured in domestic currencies, USD or EUR), whilst the latter is this same nominal GDP adjusted for inflation by choosing a fixed point in history for the exchange rate. In addition to this, economists developed a way of accounting for the differences in the cost of living around the world, that we call Purchasing Power Parity (PPP).
As I have already said, Leparmentier chose to comment GDP at current prices, whilst we usually consider constant prices for similar purposes. To have an idea of the difference, we can take a look at GDP at constant prices data from the World Bank database.
In this plot, which looks pretty different from the one we started with, we see that there has always been a gap between the US and the Eurozone GDPs (at least since the 1970s), which slowly increased starting in the 1980s, to then accelerate since the early 2000s. As there is no moment around 2008 when the Euro Area gets closer to the US as in Leparmentier data in here, we are in front of a substantially different scenario.
Let us take a look at the plot for GDP per capita at constant prices from the World Bank as well.
This one is really interesting. If we consider GDP per capita at constant prices, a gap has existed since the 1970s, and it has been quite stable, the US one always fluctuating between 49% and 67% higher than Europe’s.
To look at GDP at PPP, I had to aggregate myself the IMF data which are available separately for all the Eurozone countries starting in 1995.
In this plot, adjusting GDP for the cost of living makes the growing trajectories of the two much more similar. The gap is still there, but again there was not a convergence of the two lines in 2008, so that the difference is only slightly greater in 2023.
In order to complete this analysis, I will assess real GDP growth (“real” as it takes into account inflation) thanks to data provided by the IMF; note that data for 2024 is obviously just a provisional estimate. As we can see at first glance, US growth was lower than Europe’s in only nine out of the thirty-three years considered (namely: 1995, 2001, 2006, 2007, 2011, 2016, 2017, 2021 and 2022). This sort of confirms the idea that the Eurozone lagged behind the US in recent years.
Throughout the entire period, US growth has been on average 1,09 percentage points higher than Europe’s.
| Country | Average % Growth (1992/2024) |
|---|---|
| Eurozone | 1.46 |
| United States | 2.55 |
In order to have an idea of how this growth varied over time, here is a table with the average percentage growth by period. There is no particular methodology in the choice of the way years are grouped, the sole purpose being to give an overview of how the four-year average economic growth rates evolved and compared over the last three decades.
| Period | Eurozone | United States |
|---|---|---|
| 1992 / 1995 | 1.50 | 3.25 |
| 1996 / 1999 | 2.52 | 4.38 |
| 2000 / 2003 | 1.90 | 2.40 |
| 2004 / 2007 | 2.55 | 3.02 |
| 2008 / 2011 | -0.07 | 0.45 |
| 2012 / 2015 | 0.58 | 2.45 |
| 2016 / 2019 | 1.98 | 2.45 |
| 2020 / 2023 | 0.90 | 2.00 |
To assess more precisely Leparmentier’s statement, I focused on the post-2008 time frame. Note that the “until 2008” period here starts in 1992, when the IMF data are first available.
As we can see, average growth decreased in both areas, the US actually slowing down almost as much as Eurozone (1,08 versus 1,15 percentage points less compared to the pre-2008 period), even if its growth is still 1,13 percentage points higher. That said, we cannot ignore that the European average growth of 0,87% between 2009 and 2024 is really feeble. For the sake of comparison, according to the same data, in the same period the European Union’s GDP grew by an average 1,16%, which is for sure not strong either.
| Country | Average % Growth (until 2008) | Average % Growth (since 2008) |
|---|---|---|
| Eurozone | 2.02 | 0.87 |
| United States | 3.08 | 2.00 |
To double-check our data at the level of the individual, here is a graph to take a look at GDP per capita growth from the World Bank as well.
As we can see, the trends do not differ that much from the GDP ones we have previously seen.
Breaking it Down
Break this performance down between European countries. Who’s to blame?
As the Eurozone is a group of distinct diverse countries, we may be interested in understanding how the different members performed over the period, to see whether some are more responsible than others of this growth gap. To do so, I got back to some data from above, disaggregating it at the country level.
I first looked at real GDP growth data from the IMF, to see if I was able to identify some important differences between the member States, and possibly the countries which apparently struggled the most in contributing to economic growth. Note that data for 2024 is obviously just a provisional estimate, and that before 1996 data were not available for all the examined countries.
At a first glance, focusing on the post-2008 period, we identify similar growth trends in most of the countries, but we see as well that indeed each State had a different trajectory, and that the rates could vary significantly even in a same given year. It looks like Ireland and Malta are the countries which grew the fastest since the 2010s, whilst, on the other hand, in the same time frame, Greece and Cyprus were some of the countries that suffered the most during both the Great Financial Crisis and the subsequent European Sovereign Debt Crisis. The largest Eurozone economies - Italy, France and Germany - also experienced low growth rates in recent years.
As the graph only gave us a first overview of the situation, I wanted to go more in-depth, so I calculated average growth rates for every member State. Here is the table for the period 1996/2024: the figures in red are those which are below the Eurozone average growth (i.e. 1,45% between 1996 and 2024; note that here I do not mean the average of Eurozone member countries, but the data for Eurozone as a whole), those in green are above the Eurozone average growth, whilst those in blue are the ones which are above the average growth rate of the US in the same period (i.e. 2,46%).
| Country | Average % Growth (1996/2024) |
|---|---|
| Ireland | 5.78 |
| Malta | 4.09 |
| Lithuania | 3.96 |
| Estonia | 3.61 |
| Latvia | 3.52 |
| Slovak Republic | 3.38 |
| Luxembourg | 3.09 |
| Cyprus | 3.00 |
| Slovenia | 2.65 |
| Croatia | 2.54 |
| Spain | 1.99 |
| Netherlands | 1.93 |
| Finland | 1.85 |
| Belgium | 1.80 |
| Austria | 1.59 |
| Portugal | 1.48 |
| France | 1.46 |
| Germany | 1.20 |
| Greece | 1.04 |
| Italy | 0.67 |
Two of the three largest Eurozone economies joined Greece to form a club of the countries that performed the worst over the period (with France averaging a growth of only 0,01 pp higher than the Eurozone’s), whilst as many as ten countries grew faster than the US on average! However, as these countries’ economies are much littler than Italy’s or Germany’s one, their weight is not as important.
Focusing on the post-2008 period, only three countries have been growing faster than the US. The Greek GDP actually decreased over the period on average, while countries like Italy and Finland averaged almost zero growth.
| Country | Average % Growth since 2008 |
|---|---|
| Ireland | 5.41 |
| Malta | 5.22 |
| Cyprus | 2.03 |
| Lithuania | 1.99 |
| Slovak Republic | 1.97 |
| Luxembourg | 1.85 |
| Estonia | 1.48 |
| Slovenia | 1.39 |
| Belgium | 1.35 |
| Croatia | 1.34 |
| Netherlands | 1.14 |
| Latvia | 1.03 |
| Germany | 0.94 |
| France | 0.89 |
| Portugal | 0.86 |
| Austria | 0.85 |
| Spain | 0.76 |
| Finland | 0.30 |
| Italy | 0.15 |
| Greece | -1.02 |
Taking a look at how things were going before 2008, twelve countries performed better than the US on average. But again, the Big Three are those that had the lowest average rate, Italy and Germany already growing less than 2% a year. I computed again the averages for the US and the Eurozone as here the time frame is 1996/2008 and not 1992/2008 as before when I first calculated them. This is due to the fact that data for some countries are not available before that date.
| Country | Average % Growth until 2008 |
|---|---|
| Eurozone | 2.18 |
| United States | 3.02 |
| Country | Average % Growth until 2008 |
|---|---|
| Latvia | 6.59 |
| Lithuania | 6.38 |
| Ireland | 6.23 |
| Estonia | 6.22 |
| Slovak Republic | 5.12 |
| Luxembourg | 4.62 |
| Slovenia | 4.20 |
| Cyprus | 4.19 |
| Croatia | 4.03 |
| Finland | 3.76 |
| Greece | 3.58 |
| Spain | 3.51 |
| Netherlands | 2.92 |
| Malta | 2.70 |
| Austria | 2.51 |
| Belgium | 2.36 |
| Portugal | 2.25 |
| France | 2.16 |
| Germany | 1.53 |
| Italy | 1.32 |
Computing the difference in average growth between these two periods, we clearly see that Europe slowed down in recent years, as only Malta’s average growth rate increased, whilst as much as eleven member States lost more than 2 percentage points. The Eurozone as a whole has been growing on average 2,31 percentage points (median 2,43 pp) slower since 2008. In the last column, figures are red if the difference is negative, and green if positive.
| Country | Average % Growth until 2008 | Average % Growth since 2008 | Difference in Average % Growth |
|---|---|---|---|
| Malta | 2.70 | 5.22 | 2.52 |
| Germany | 1.53 | 0.94 | -0.59 |
| Ireland | 6.23 | 5.41 | -0.82 |
| Belgium | 2.36 | 1.35 | -1.01 |
| Italy | 1.32 | 0.15 | -1.17 |
| France | 2.16 | 0.89 | -1.27 |
| Portugal | 2.25 | 0.86 | -1.39 |
| Austria | 2.51 | 0.85 | -1.66 |
| Netherlands | 2.92 | 1.14 | -1.78 |
| Cyprus | 4.19 | 2.03 | -2.16 |
| Croatia | 4.03 | 1.34 | -2.69 |
| Spain | 3.51 | 0.76 | -2.75 |
| Luxembourg | 4.62 | 1.85 | -2.77 |
| Slovenia | 4.20 | 1.39 | -2.81 |
| Slovak Republic | 5.12 | 1.97 | -3.15 |
| Finland | 3.76 | 0.30 | -3.46 |
| Lithuania | 6.38 | 1.99 | -4.39 |
| Greece | 3.58 | -1.02 | -4.60 |
| Estonia | 6.22 | 1.48 | -4.74 |
| Latvia | 6.59 | 1.03 | -5.56 |
| Average Difference in Average % Growth |
|---|
| -2.31 |
| Median Difference in Average % Growth |
|---|
| -2.43 |
If we wanted to go more in-depth analyzing these data to understand the gap in performance between Eurozone member States, we could propose a model which would be taking into account factors such as the geographic location (Western, Southern, Central or Eastern Europe), institutions (a dummy variable to tell if a country was under a Communist regime in the past, for example), labor market figures, EU funds allocation, public expenses on education and research, trade balance, public deficit, private debt and investment.
In the context of this brief analysis, I will just rapidly look - with a very simplistic linear model - at a possible correlation between 2008 GDP at constant 2015 trillions USD and average real GDP growth rate since 2008, as this could seem plausible according to our previous tables.
| Exploratory Regression | |
|---|---|
| (Intercept) | 1.78 *** |
| (0.39) | |
| `2008 GDP (Constant 2015 Trillions USD)` | 0.00 |
| (0.00) | |
| N | 20 |
| R2 | 0.09 |
| *** p < 0.001; ** p < 0.01; * p < 0.05. | |
Even if the regression line in the plot shows a negative relationship, the regression analysis tells that 2008 GDP has 0 influence on subsequent GDP growth, but even this figure is absolutely not statistically significant. The purpose of this was just to play a bit around with data.
As we did previously, we can also take a look at GDP per capita, at constant 2015 USD this time; data by the World Bank are available until 2022. Here is a graph with its evolution in all twenty member States over the years. The impressive growth of Ireland stands out, even if, as we know, it could be considered as a sort of “artificial” growth, as Ireland became in the last years a tax heaven for IT companies and other big firms that want to have a seat in Europe. Luxembourg GDP per capita is higher than it should for multiples reasons, one of them being the fact that a significant part of the national workforce is constituted by cross-border workers from France and Germany3.
Here is a plot with GDP per capita growth rates in member States.
To inspect how this rate varied across Euro Area countries, I created the same table as before, with the same color legend.
Again, the Big Three and Greece are those that registered the lowest growth, with Italy growing on average a mere 0,53% a year. On the other hand, eleven countries performed better than the US.
| Country | Average per Capita % Growth (1996/2022) |
|---|---|
| Eurozone | 1.25 |
| United States | 1.53 |
| Country | Average per Capita % Growth (1996/2022) |
|---|---|
| Lithuania | 5.14 |
| Ireland | 4.85 |
| Latvia | 4.82 |
| Estonia | 4.26 |
| Slovak Republic | 3.51 |
| Malta | 3.50 |
| Croatia | 3.21 |
| Slovenia | 2.48 |
| Cyprus | 1.75 |
| Finland | 1.71 |
| Netherlands | 1.54 |
| Luxembourg | 1.47 |
| Belgium | 1.30 |
| Portugal | 1.30 |
| Spain | 1.28 |
| Austria | 1.23 |
| Germany | 1.20 |
| France | 1.02 |
| Greece | 1.00 |
| Italy | 0.53 |
Focusing on the same comparison we made before between pre-2008 and post-2008, we can see that since 2008 seven countries performed worse than the Eurozone as a whole (with Greek GDP per capita actually decreasing on average, and Italy and Luxembourg experiencing zero growth), and seven performed better than the US.
| Country | Average % Growth since 2008 |
|---|---|
| Eurozone | 0.71 |
| United States | 1.13 |
| Country | Average per Capita % Growth since 2008 |
|---|---|
| Ireland | 5.29 |
| Malta | 3.17 |
| Lithuania | 3.04 |
| Latvia | 2.17 |
| Croatia | 1.96 |
| Slovak Republic | 1.96 |
| Estonia | 1.89 |
| Slovenia | 1.00 |
| Germany | 0.93 |
| Cyprus | 0.88 |
| Portugal | 0.80 |
| Belgium | 0.72 |
| Netherlands | 0.72 |
| France | 0.51 |
| Austria | 0.39 |
| Spain | 0.28 |
| Finland | 0.11 |
| Italy | 0.03 |
| Luxembourg | 0.00 |
| Greece | -1.02 |
On the other hand, until 2008 (in the years 1996/2008) three quarters of the Eurozone countries were growing faster than the US, with only the Big Three performing worse than the Euro Area as a whole. It looks like a great difference from what we are used to see nowadays.
| Country | Average % Growth until 2008 |
|---|---|
| Eurozone | 1.82 |
| United States | 1.97 |
| Country | Average per Capita % Growth until 2008 |
|---|---|
| Latvia | 7.68 |
| Lithuania | 7.41 |
| Estonia | 6.82 |
| Slovak Republic | 5.18 |
| Croatia | 4.54 |
| Ireland | 4.37 |
| Slovenia | 4.07 |
| Malta | 3.86 |
| Finland | 3.44 |
| Greece | 3.18 |
| Luxembourg | 3.04 |
| Cyprus | 2.69 |
| Netherlands | 2.42 |
| Spain | 2.35 |
| Austria | 2.13 |
| Belgium | 1.93 |
| Portugal | 1.84 |
| France | 1.56 |
| Germany | 1.49 |
| Italy | 1.06 |
Calculating the difference between the two averages, we see that half of the countries lost more than 2 percentage points, and, again, there is only one country whose average growth increased: this time is Ireland, of which we have already mentioned the “peculiarities”. The Eurozone as a whole has been growing on average 2,31 percentage points slower since 2008 (the same value we found for GDP, but with a lower median of 1,94 pp this time).
| Country | Average per Capita % Growth until 2008 | Average per Capita % Growth since 2008 | Difference in Average per Capita % Growth |
|---|---|---|---|
| Ireland | 4.37 | 5.29 | 0.92 |
| Germany | 1.49 | 0.93 | -0.56 |
| Malta | 3.86 | 3.17 | -0.69 |
| Italy | 1.06 | 0.03 | -1.03 |
| Portugal | 1.84 | 0.80 | -1.04 |
| France | 1.56 | 0.51 | -1.05 |
| Belgium | 1.93 | 0.72 | -1.21 |
| Netherlands | 2.42 | 0.72 | -1.70 |
| Austria | 2.13 | 0.39 | -1.74 |
| Cyprus | 2.69 | 0.88 | -1.81 |
| Spain | 2.35 | 0.28 | -2.07 |
| Croatia | 4.54 | 1.96 | -2.58 |
| Luxembourg | 3.04 | 0.00 | -3.04 |
| Slovenia | 4.07 | 1.00 | -3.07 |
| Slovak Republic | 5.18 | 1.96 | -3.22 |
| Finland | 3.44 | 0.11 | -3.33 |
| Greece | 3.18 | -1.02 | -4.20 |
| Lithuania | 7.41 | 3.04 | -4.37 |
| Estonia | 6.82 | 1.89 | -4.93 |
| Latvia | 7.68 | 2.17 | -5.51 |
| Average Difference in Average per Capita % Growth |
|---|
| -2.31 |
| Median Difference in Average per Capita % Growth |
|---|
| -1.94 |
What we can affirm following this analysis is that almost all of the Eurozone countries have been slowing down since 2008, and notably less countries have grown faster than the US than before.
The last indicator we could be interested in taking a rapid look at is GDP per employed person (at constant 2017 USD PPP as before), from the World Bank database. Except for the “inflated” figures of Ireland and Luxembourg (and maybe Belgium as well, due to cross-boarder workers and the presence of the main European Institutions), Italy is the country whose workers have been amongst the most productive of the Eurozone since the early 1990s and it is still the case, even if its figure stagnated or even decreased between 2001 and 2021. On the other hand, France and Germany lagged behind but grew pretty solidly in the last decades. We can also see how strong Easter European countries’ growth has been just until 2008.
In sum, it is not easy to really blame some countries specifically for the poor economic performance of the Eurozone in the last years. What is sure is that the Big Three - and particularly Italy - have not been performing that well since 2008. As they are the largest economies of the Eurozone, their slow growth had an important impact on the overall expansion of the Euro Area. On the other hand, we were able to see that even the countries that were running fast in the 2000s, slowed down after 2008. This was primarily due to the fact that we entered the era of subsequent economic crises, but also as that probably the catch-up effect of the Eastern European countries emerged from Communism was running out.
As the Eurozone is composed of individual countries with different national policies, it is not as easier as in the US to intervene during economic crises by programming recovery plans and investments; and regrettably, the measures which had been imposed by the EU - along with its economic policies and rules in general - were far from being efficient. The austerity packages ran in the 2010s have for sure not contributed to fostering economic growth, and the Neoliberal principles still constitute a threat to our European economies, as we are seeing these last months. Even if the situation is not as critic as commentators like Leparmentier love to depict it, with the European Elections just around the corner, our sole hope is that something changes in the European economic governance, in order to start acting to really revitalize the Old Continent’s economy.
Writing a Short Piece
Write a short piece (300 words, about 2 paragraphs, and 2 graphs of your own choosing) about the relative economic performance of Europe versus the U.S.
As we have seen through this analysis, there are many ways of measuring GDP, and, accordingly, GDP is not the only way of measuring economic performance. Trade is one of these. Considering that a country should not be excessively dependent on imports not to give up its sovereignty, and that exports are a way of accounting for a country’s brands prestige, industry quality, “Made in” label reputation, soft power, and economic power and competitivity, I would like to analyse how the Eurozone and the US compare in these indicators.
I only found data in current USD, published by the World Bank. We can see how the trade balance of the US has been deteriorating since 1999 (this terrific trend started in the mid-1970s), whilst the Eurozone one increased constantly (the 2022 figure is not reliable as it was due to the energy prices shock following the War in Ukraine).
Going deeper into the relative performance, I wanted to present the data about the trade balance between the Eurozone and the US.
Note that, as indicated on the Eurostat website, data for Italy include San Marino and data for Belgium include Luxembourg, and that the values are expressed in current prices4. Only Eurozone is shown by default in the graph, but it is possible to look at all member States as well by clicking on the legend shortcuts. Also, I could not adjust data on a \(log\) scale neither for this plot nor for the one above, as plotly does not support it for series with negative values, so that we would have not been able to look at countries like the Netherlands if I did.
In this last plot we can see how large the European trade surplus with respect to the US is: thanks to Italy and Germany especially, which represent alone almost 95% of the surplus in 2023 (127.927.365.210€ out of 135.154.698.067€)! What makes these figures particularly interesting is their strong positive trend: the surplus increased every year between 2009 and 2021, and started growing again in 2023 after the energy prices shock. This is for sure a fact we should reflect on when we will finally decide to think about a strategy to revive our economies.
Resources
Readings
Europe has fallen behind America and the gap is growing. Gideon Rachmann, Financial Times, June 19 2023. html
What the US got right that Europe did not. Martin Sandbu, Financial Times, November 2 2023. html
Is the US economy outperforming Europe? Valentina Romei, Financial Times, December 28 2023. html
Resources
Here are some data resources you might wish to use on my personal website:
Footnotes
LEPARMENTIER, Arnaud. The GDP Gap between Europe and the United States Is Now 80%, Le Monde.↩︎
Eurozone countries, as of 2024: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain.↩︎
ERIXON, Fredrik; GUINEA, Oscar; DU ROY, Oscar. If the EU Was a State in the United States: Comparing Economic Growth between EU and US States, European Centre for International Political Economy↩︎
Statistical Office of the European Union. Detailed Data on International Trade in Goods, Eurostat↩︎