Europe’s Crisis Measures Are Working…Sort Of

Last week’s deal to avoid Greece defaulting on its huge debt is the latest twist in Europe’s painful, drawn-out saga to rescue the euro and, with it, all hopes of bringing its economies into a true union. The focus remains on a mixture of short-term fixes to avoid a breakdown of the single currency, and complicated longer-term measures such as the establishment of a banking union. But stepping back for a moment, it’s useful to look at the impact of all the measures that have been decided and implemented, both in national capitals and at a pan-European level, in an endless series of emergency meetings and carefully constructed communiqués. Have they actually made a difference? The short answer is that the economic picture throughout Europe still looks very gloomy, and in fact is getting even gloomier, with recession continuing across the continent and unemployment continuing to rise. At the same time, the draconian measures undertaken by governments in Greece, Spain, Ireland, and elsewhere  – often in the face of mass protests – are starting to have an impact. Budget deficits are getting smaller, and several countries are slowly starting to claw back some of their lost competitiveness as they impose tough austerity policies. (MORE: Are We Watching Another North American Financial Crisis Unfold?) The big question is whether these changes are good, bad, or enough. Perhaps inevitably, economists are caught up in some fierce arguments over the issue. On the one hand is the Organisation for Economic Cooperation, which this week presented its economic outlook for 2013 and 2014. Pier Carlo Padoan, its deputy secretary-general and chief economist, isn’t particularly optimistic about the eurozone, seeing a host of unresolved issues from undercapitalized banks to slow progress on a fully-fledged banking union. But he and his colleagues at the OECD say the sometimes brutal adjustments being made are vitally important if the eurozone’s health is to be restored – and they see some progress. Unit labor costs are one indicator. Before the crisis, labor costs in places like Greece and Spain

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