Strong Core, Pain on the Periphery

* THE fear that Greece's sovereign-debt crisis might presage similar episodes elsewhere in the euro zone has been borne out. In November, Ireland joined Greece in intensive care, becoming the first euro-zone country to apply for funds from the rescue scheme agreed in May 2010 in concert with the IMF, and in April this year Portugal followed suit. Sovereign-bond spreads (the extra interest compared with bonds issued by Germany, the safest credit) are now much higher in all three of the bailed-out countries then they were in May 2010. Promises to tackle budget deficits through public spending cuts and tax increases have offered little reassurance to bondholders, who know that austerity will take its toll on growth.

The interactive graphic above (updated July 25th 2011) illustrates some of the problems that the European economy faces. GDP picked up in most countries through 2010 but there were marked differences in performance. Germany was especially sprightly: its economy expanded by almost 5% in the year to the first quarter of 2011. But GDP in Greece has crashed under the weight of austerity; Ireland contracted sharply in late 2010; and Spain's economy is barely growing.

In many countries unemployment has not gone up by as much as one might expect given the depth of the crisis. Germany now has lower unemployment than before the crisis, thanks in part to a short-time working scheme and flexible time arrangements in its manufacturing sector. The worst-affected countries include Ireland and Spain, where a collapse in construction has swollen the dole queues. Youth unemployment is especially high in Spain, prompting protests in May. Britain has fared better because its tight planning laws limited the growth of its construction sector during the global housing boom.

Weak growth and high unemployment spell particular trouble for countries that already have high levels of public debt. That explains why Greece was first to lose the confidence of the markets with a public-debt-to-GDP ratio of 127% and a budget deficit of 15.4% of GDP in 2009, making it the euro zone's outlier country. Ireland had low public debt going into the crisis, but the state became crippled by its pledge to backstop its banks together with the hole that was blown in its tax revenues by a combination of recession and housing bust. Forecasts in mid-May from the European Commission showed public debt vaulting above 100% of GDP in both Ireland and Portugal by the end of this year and reaching a dizzying 158% of GDP in Greece. Other countries are pruning before the markets exert real pressure: Britain's debt has the longest maturity of any EU member but it is still aiming to get its finances in order within four brutal years.

* And following the second bail-out package for Greece, agreed by European leaders at a summit in late July, they now know that credit-rating agencies expect Greece to go into default.