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Leading economists have painted a grim outlook for the euro zone at a forum here, with one saying there will be no winners, no matter what course of action is taken.
"More integration will be painful for everyone, and disintegration will be also very painful. Whichever way is chosen, it will be very painful," Andreas Hoefert, chief global economist with UBS Wealth Management Research, told the American Business Forum on Europe on Monday.
"There is no happy ending to this euro crisis. There is no winner, there are only losers," he said.
France fell into a mild recession after its economy contracted 0.2 percent in the first quarter this year, marking the third decrease in the last four quarters, preliminary data released Wednesday by French National Institute of Statistics and Economic Studies (Insee) showed.
Meanwhile, Germany posted an anemic 0.1 percent quarterly growth in the first three months of this year, missing market expectations of a 0.3percent increase, and its Federal Statistics Office (Destatis) on Wednesday also revised the fourth-quarter growth of the European economic powerhouse down to minus 0.7 percent from minus 0.6 percent.
"If you note the economic situation in Europe, it is very, very bleak. We would have the second year of recession in the euro zone. What is even worse is if we start to look at the unemployment rate," Hoefert said.
The unemployment rate in the euro zone edged up 0.1 percentage point to 12.1 percent in March from February, marking a new high compared to 2000, according to figures released late April by the European Union's (EU) statistical bureau, Eurostat.
Among EU member states, Spain and Greece recorded the highest jobless rates, both hitting 27 percent.
"This is shameful," Hoefert said, noting that even during the Great Depression in the United States, the peak unemployment rate was 20 percent.
Chief global economist of Citigroup Willem Buiter said Monday in a report, "the euro area -- and most of the rest of the EU -- face two or three more years of recession and tepid cyclical recovery, even if EU policy makers enact the right measures as fast as their glacial decision-making process allows."
"Excessive leverage" is the cause of the balance sheet recession, Buiter said in the report entitled "Europe: The light at the end of the tunnel is still two to three years away."
The growth of the euro zone would not return until deleveraging is completed, Buiter said. "The main instruments of deleveraging will be debt mutualization and debt restructuring," he said.
But Buiter also said, "unfortunately, we cannot be sure that even when the deleveraging process is complete and domestic demand expands again, growth will be more than that of a cyclical recovery."
It is noteworthy the U.S. economy is gradually picking up from the global financial crisis since last year, while Europe showed little sign of improvement.
Hoefert said a lack of "labor mobility" and "common institution" makes Europe a different story from the United States.
Hoefert drew an interesting analogy between the United States and eurozone countries. He said the difference in GDP per capita between Massachusetts and Louisiana is roughly equal to the one between Germany and Greece, but people never heard American people saying Louisiana should leave the "dollar zone" or Massachusetts wants to leave the "dollar zone."
"Labor mobility is obviously not mitigating the disparities between different regions" in Europe, he said, noting it was easier for an American to move from one U.S. state to another for a job than for a European to move from one eurozone country to another, as different languages and labor and social security laws post impediments.
A lack of common institution in the euro area was a more important cause of the euro crisis. "You cannot have this currency union without having an institution which is over the governments," Hoefert said. ' To solve the euro crisis, policy makers should create "a fiscal union, a banking union and a level playing field in terms of competitiveness," but this would be a daunting task, he said.
Looking forward, Hoefert said he was pretty convinced there would still be a euro in 10 years, but it would be different.
"Probably some countries will have left the euro (zone) ... and those countries which remain in the euro will be much, much more integrated," including the fiscal integration, the banking union and the competitiveness integration," he said.
