The eurozone recovery stays happily on track

But over the past couple of years, a recovery has taken hold. Monday’s news of a further decline in unemployment and the fastest growth in reported manufacturing output since 2011 adds to a sense of returning normality. The same could prove true on the political front. The Dutch elections last month have almost certainly returned a centre-right prime minister to lead a coalition of mainstream parties, marginalising far-right candidates. The forthcoming French presidential elections are unpredictable. But if the polls are right — admittedly a strong assumption — France will install a centrist technocratic president in May and Germany either a mainstream centre-left or centre-right chancellor in September.

The happy news is testament to the work of the ECB on one hand and the relative good sense of eurozone countries’ voters on the other. Yet it is both wrong to assume that the threat of recession and a turn away from the democratic centre have disappeared, and indeed that prosperity necessarily leads to moderation.

Radical and extremist politics can flourish even at times of general improvement, particularly if sufficient numbers of people believe they are being left behind. Podemos, the radical left party that threatened to shake up Spanish politics, was founded in 2014, by which time Spain’s economy was recovering and unemployment was falling. Nor do they have to be directly connected to economic wellbeing at all. The AfD in Germany draws much of its support from relatively well-off voters. Its rise to challenge Angela Merkel’s Christian Democrats has come against a backdrop of solid German economic growth and very low unemployment.

The onus thus remains on eurozone governments to do two things that are frequently in tension with each other: one, to increase their economies’ trend growth rate with structural improvements; and two, to try to provide security of employment and income, particularly to marginalised households.

The contradiction comes because liberalisation and deregulation often bring uncertainty about jobs and wages, and with them political resistance. Governments need to make sure that they use what leeway they have on fiscal policy to cushion the impact on domestic demand and particularly on those groups affected by change.

Nonetheless, some attempt to improve the functioning of the eurozone’s economies is needed beyond merely enjoying the cyclical recovery. The unemployment rate across the bloc may be at its lowest since 2009, but at 9.5 per cent it is much higher than in economies such as the UK or the US. Even Germany has delivered its very low unemployment by holding down real wages and running a trade surplus that in effect takes demand from elsewhere in the eurozone.

If not moving into sunlit uplands, the eurozone does at the moment seem to be in relative peace compared with the uncertainties haunting the UK before Brexit and the political turbulence of Donald Trump’s America. To turn that into a sustainable state of affairs will need determined attention from its governments in both the economic and political spheres.