Greater Germany Outpaces Club Med in a Divided Europe

At the end of last week Federica Mogherini met leading members of the Trump administration. Mogherini, yet another Italian politician turned Euro-bureaucrat, is in fact the foreign policy chief of the European Union. She stood on her dignity, or rather the dignity of the European Commission, issuing a warning to America not to interfere with politics in Europe.

We might reasonably wonder what American armed forces have been doing for the past 70 years, effectively providing the defence of Continental Europe and so sparing the local politicians the need to raise taxes to pay for it themselves. But this free riding by Europe is apparently an acceptable form of interference. On anything else, America has to be “warned”.

Mogherini went on to surpass herself, claiming that “the strength of the EU and the unity of the EU I believe is more evident today than it was”. `This strength and unity are on full display in the latest instalment of the Greek debt crisis. Output in Greece is over 20 per cent lower than it was in 2007, ten years ago. And the Germans are showing the greatest reluctance to put their hands in their pockets yet again to bail out the Greeks.

More generally, the data on output – GDP – reveal an absolute fundamental split between the economies of the EU. What we can think of as Greater Germany has performed far better since the financial crisis then the Club Med.

In the former group, to Germany itself we can plausibly add economies such as Austria, Poland, Czech Republic, the Netherlands and Belgium. The Club Med is represented by France, Spain, Portugal, Italy and Greece.

To put it starkly, Greater Germany has recovered since the financial crisis and Club Med has not. In every individual year since 2009, Greater Germany has grown faster than Club Med.

Output in the former is just over 14 per cent higher than it was in 2009, the year of deep recession with output shrinking almost everywhere in the Western economies. In the latter, it has also risen, but only by 2 per cent. And growth of 2 per cent was typical for just a single year in the decades prior to the crisis.

In 2009, the two blocs were of very similar overall size. Total output in each was around 5 trillion Euros, with the Club Med group being slightly the larger of the two. Stripping out inflation, output in Greater Germany is around 700 billion Euros higher than it was in 2009, and Club Med has registered an increase of only 100 billion. Even removing Greece from the latter makes little difference, given that the Greek economy makes up less than 5 per cent of the Club Med group as a whole.

A massive gap has opened up between two different groups of economies within the EU in the space of less than a decade. One has grown almost as much as the dynamic UK. The other languishes with growth close to zero. Strength? Unity? It’s just the way Mrs Mogherini tells them!