The euro area economy’s vaunted strengths are starting to look like weaknesses

A YEAR ago, when the financial crisis was in its infancy, the euro area enjoyed a brief moment in the sun. Its peers in the rich world—including Britain, the largest European Union economy outside the euro—had enjoyed faster growth and lower unemployment but now looked vulnerable. Britain was everything a country should not be in a credit crunch: debt-ridden, reliant on foreign savings, chock-full of banks and estate agents, and short of firms that made tangible stuff. America ticked many of those boxes too. In contrast, Europe’s past vices now seemed like virtues: rigidity recast as solidity, risk-aversion as prudence. When the crisis got worse in the autumn, the euro was a shelter for its members from the storms.

It is clear that America and Britain are indeed suffering badly. But so now is all of the rest of Europe. Figures due out on February 13th are expected to show that euro-area GDP shrank at an annualised rate of around 5% in the fourth quarter of 2008, worse even than the grim numbers from America, although not quite as bad as those for Britain. Business indicators have stabilised but this suggests only that the economy is likely to shrink at a similar rate in the current quarter, not that activity has stopped falling. The IMF forecasts that euro-area GDP will decline by 2% this year and barely recover in 2010. ...