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The Periphery’s Purgatory

ATHENS – German Chancellor Angela Merkel’s upcoming visit to Athens will be a far less tense affair than her earlier journeys here during Europe’s long financial crisis. Of course, Greeks have little love for Merkel; but, thanks to Europe’s modest economic recovery, some of the poison has been drawn from Germany’s relations with Europe’s most damaged and distressed economies.

Indeed, Europe is no longer considered a risk to global financial stability. The eurozone’s core economies are showing signs of revival, and financial conditions in the over-indebted periphery are improving as well. But, given capital shortages, depressed demand, and the slow pace of reform in the eurozone periphery, continued progress is far from certain.

In the eurozone economies that were hit hardest by the global economic crisis, the output and employment losses have been huge and persistent. Real (inflation-adjusted) per capita income in the eurozone as a whole hovers around its 2007 level; in Greece and Italy, however, it has sunk to the levels recorded in 2000 and 1997, respectively.