It’s now official: the eurozone is on the way out of recession. Unexpectedly strong second quarter growth figures from France and Germany surprised the markets last week, pulling quarterly estimates for the eurozone as a whole to a mere 0.1 per cent contraction. The eurozone is exiting narrowly ahead of the United States, which is expected to return to growth later this year after a 0.3 per cent fall in the last quarter.

So is the eurozone finally pulling ahead of the US after two decades of lacklustre growth, or is this merely a temporary reprieve? The answer is: it will prove temporary, but make way for sustained growth at a later point in time.

Optimists can point to the fact that Europe has proven more successful, thus far, in maintaining jobs. Eurozone unemployment has edged gradually up from 7.4 to 9.4 per cent since May of last year, while the US figure, which began at a much lower 5.5 per cent starting point, has rocketed upwards by 4 percentage points to briefly surpass the eurozone level for the first time since 1982.

However, in other areas the eurozone is still beset by underlying weaknesses. For example, while eurozone economies are now recovering as sharply as the United States, company second-quarter profit and loss announcements have proven disappointing. As Richard Milnes reported in the Financial Times earlier this week, ‘Companies from the eurozone are the only ones, among the trio of regions, where there have been more disappointments than positive surprises in the ongoing second-quarter results season’. 26 per cent of eurozone companies have missed profit expectations, against only 19 per cent in the US.

Another area of concern is the health of the eurozone banking system, where less has been done to directly recapitalise the financial sector. In Germany, the regulator (Bafin) estimates there remain about €800bn in toxic and non-core assets on the balance sheets. Only last week, the President of the Federal Association of German Banks warned of the possibility of a second ‘credit crunch’ in the country, with banks refusing to lend, starving business of fresh capital.

These divergences in the labour market, corporate, and financial sector performance between the eurozone and US economies not only suggest differences in the nature of economic recovery, but also in how our respective institutions answer the central question of public policy: cui bono?

In the United States, the costs of the crisis have been disproportionately borne by workers, savers, and taxpayers, whereas in the eurozone the cost have been more evenly spread among investors, consumers, and banks. The most obvious area where this is true is with respect to labour market regulation: eurozone companies have found it more difficult to shed jobs, which has prevented the rise of unemployment, and eaten into corporate profit margins, whereas US companies have preserved profitability at the expense of job security. American workers have therefore felt the pain relatively quickly, whereas in Europe this pain has first been felt by shareholders. Hence the divergent trends for US and eurozone unemployment and company profits.

More subtle are the respective responses by the Federal Reserve and the European Central Bank, as well as by the US and by eurozone governments. The Federal Reserve, by lowering interest rates close to zero, has dealt particularly harsh treatment to US savers, while rewarding borrowers, including those who took loans at the height of the asset bubble; the European Central Bank, by stopping at 1 per cent, has chosen to maintain a residual incentive for saving over consumption. By offering a large publically financed programme of bank recapitalisation, the US government has also guaranteed a significant portion of bank losses against the federal taxpayer, whereas in Europe banks have been left to manage a more gradual process of deleveraging.

The eurozone approach is clearly more just – not only socially just, in terms of the protection afforded to workers and employees, but also morally just, in that borrowers, banks, and their investors bear greater responsibility for bringing about the economic crisis. But in the long run, will it also prove a more efficient means of restoring growth?

Some economists claim that the eurozone approach lays the seeds for a prolonged economic malaise, with a decade of lost growth as companies are neither able to invest using money borrowed from the banks, nor from retained profits, which will be squeezed due to excessive employment capacity. The experience of Japan is cited as a salutary warning.

Yet could US policy, by creating such unprecedented fiscal and monetary imbalances, simply be laying the groundwork for another crisis several years hence? By creating moral hazard, encouraging banks to lend irresponsibly and consumers to continue accumulating debt, the present policies of the Treasury and the Federal Reserve risk reinforcing existing imbalances. The US experience from 2003 to 2007 stands as a warning, as following the dot-com collapse a secondary bubble was formed by growing fiscal and trade imbalances.

The danger, then, is that once the United States experiences a sharp rebound, it will postpone the cost of fiscal and monetary adjustment to a future period of ’stability’ which may never arrive. Though the eurozone is set to continue the stable money policy which it has adopted consistently since the dot-com collapse of 2000-1, and can expect little more than a return to the same stable, if unimpressive, growth trajectory; it will be a growth trajectory, nonetheless.