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Patrick Messerlin , professor of economics at the Institut d' Etudes Politiques de Paris, thinks European leaders are right to look to Asia to build new trade agreements. Trade liberalization, Messerlin says, are the right prescription for Europe's stunted economic growth. But new trade agreements must be with the right partners. And you might be surprised as to which Asian economies Messerlin argues make the right partners for the EU. From Vox : The first question focuses on the ‘growth’ dimension of trade policy. Preferential trade agreements will only be able to boost domestic growth if the economies of the EU’s preferential trade agreements partners fulfil three main conditions. They should be big enough to generate economies of scale and scope capable of having a substantial impact on the EU’s relative prices – changes in relative prices are the source of welfare gains. They should also be well regulated because modern economies are intensive in norms and dominated by services, the efficiency of which depend largely on the quality of the regulatory schemes in place. Finally, they should have a wide network of good-quality preferential trade agreements, capable of offering EU firms opportunities to access the economies already covered by those preferential trade agreements (the ‘hub’ quality) without waiting for longish negotiations with the EU. As Table 1 shows, Japan and Taiwan – apart from the US – are the only economies in the world that meet these three conditions since the EU already has a free trade agreement with South Korea. China (possibly India in the long run, but not Brazil or Russia) may offer better growth opportunities when it comes to size. But, it still scores poorly on regulatory quality, while Japan and Taiwan score better than many EU member states. When it comes to the ‘hub’ criterion, Japan has a wide network of preferential trade agreements in east Asia (a region that EU negotiators are very slow to negotiate with) while Taiwan has massive operations in China which have been recently strengthened by a key preferential trade agreement, making Taiwan a privileged hub with respect to China. The capacity of Japan and Taiwan to meet all three conditions indicates the need for a resolute EU pivot to east Asia – an outcome echoed by general equilibrium calculations (Kawasaki 2011). Read The much-needed EU pivot to east Asia here .

We have seen a lot of speculation over Greece leaving the eurozone. But we are not clear on how a country would go about such an exit. Roger Bootle , of the Biritish financial consultancy firm Capital Economics, has a plan in mind. In fact, he and his colleagues won a tidy sum for their plan, as it won the Wolfson Economics Prize . Bootle explains what he thinks is the best way for an EU state to leave the eurozone--and spark economic growth in the process--to The Economist 's Paul Wallace :

With all the concerns about a Greek exit from the euro zone, INSEAD 's Antonio Fatas warns us not to follow the conventional wisdom when it comes to labor costs and Southern Europs. Yes, Italy, Spain, and Greece have high labor costs. The costs look very high compared to Germany, but not so much when compared to other countries in Europe like France and the Netherlands. So, Fatas argues, it is Germany that is the outlier. Fatas: It is correct that Greece, Spain and Ireland saw higher increases in unit labor costs during the 10 years of the Euro. But the difference is small compared to France or the Netherlands. For example, comparing Spain and the Netherlands the difference is about 5 percentage points over a decade. This is not a large number given how volatile exchange rates are. Estimates of unit labor costs are very imprecise and maybe they are not capturing the true loss in competitiveness of these economies. So why don’t we look at the outcome? What about the current account balance? Countries like Spain or Greece run large current account deficits during these years. Isn’t this a proof that they had lost competitiveness? Possibly, but there are other potential explanations for a current account deficit, such as an increase in spending fueled by a real estate bubble. It is not clear how to tell the two stories apart but here is a piece of evidence that I find useful. What happened to exports in Spain during all these years? If the story of lack of competitiveness is true one might expect that exports did not behave well during this decade as unit labor costs grew too fast. But the data reveals the opposite pattern. Compared to France or the UK (just to pick an outsider), Spanish exports grew faster during the last 10 years. Read Competitiveness and the European Crisis here . (H/t Mark Thoma )

Unemployment in Europe ticked up last month. The unemployment rate reached 10.8% in February--up from 10.7% in January. It is not a big jump, but it is not the direction eurozone leaders are looking for. Take a look at this trend chart from Eurostat : From the report: Eurostat estimates that 24.550 million men and women in the EU27 , of whom 17.134 million were in the euro area , were unemployed in February 2012. Compared with January 2012, the number of persons unemployed increased by 167 000 in the EU27 and by 162 000 in the euro area . Compared with February 2011, unemployment rose by 1.874 million in the EU27 and by 1.476 million in the euro area . Only four member states have been able to keep unemployment below 7%. Unfortunately, double figure rates are far more common, and the unemployment rate rose in most member states: Compared with a year ago, the unemployment rate fell in eight Member States, increased in eighteen and remained stable in Romania . The largest falls were observed in Lithuania (17.5% to 14.3% between the fourth quarters of 2010 and 2011), Latvia (17.0% to 14.6% between the fourth quarters of 2010 and 2011) and Estonia (13.9% to 11.7% between the fourth quarters of 2010 and 2011). The highest increases were registered in Greece (14.3% to 21.0% between December 2010 and December 2011), Spain (20.6% to 23.6%) and Cyprus (6.7% to 9.7%). Here's a look at the breakdown: Read the full report here .

Treasury Secretary Timothy Geithner testified on the state of the international financial system before the House Financial Services Committee today, and we imagine some part of him was pleased to not have to focus on the slow recovery in the US. He did not, however, treat the state of the global economy as a strictly foreign problem, making sure to point out the impact of Europe's economic struggles on all economies. And he pointed to the importance of US involvement in efforts to improve the bleak economic picture in Europe: The Euro Area accounts for about 18 percent of global GDP. It is a major source of financing for many emerging economies. It accounts for about 15 percent of U.S. exports of goods and services, but a larger portion of exports of many or our trading partners. When growth slows in Europe, it affects growth around the world. And when the fears of a broader European crisis have been most acute, as they were in the summer and fall of 2011 and during the spring and summer of 2010, financial markets fell around the world, damaging confidence and slowing the momentum of the global recovery. Our financial system has relatively little exposure to the five European economies at the heart of the crisis, but we have significant financial and economic ties to Germany and France and the continent as a whole. We have worked very closely with Europe’s leaders over the past two years, and with the members of the IMF, to help support a stronger European response to the crisis. The Federal Reserve’s dollar swap lines with the ECB, the Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank have played a critical role alongside the ECB’s direct efforts. European banks borrowed heavily in dollars before the crisis, and many lost the ability to borrow in dollars as the crisis intensified. The Fed’s swaps made it possible for Europe’s banks to borrow dollars from their central banks, which has helped avoid a more rapid deleveraging, reducing the impact on financial conditions in many countries where European banks had lent heavily. The IMF has also played an important role in Europe. The IMF has provided advice on the design of reforms, a framework for public monitoring of progress, and support for programs in Greece, Ireland, and Portugal in partnership with Europe, which has assumed the majority of the burden. These actions have helped limit the damage from the crisis to the United States and to economies around the world. It is in the interest of the United States that the IMF is able to continue to play a constructive role in Europe. IMF resources cannot substitute for a strong and credible European firewall and response, but they can help supplement the resources Europe mobilized on its own. Watch Secretary Geithner's testimony here , and read the full address here .

We track US unemployment closely here at The Watch, and we are eager to see what the Labor Department's monthly release will show tomorrow. But the big news on the jobs front is already out. Europe's unemployment rate has hit an all-time high--at least for the Euro Zone--according to date released this morning by the EU's statistical office: The euro area seasonally-adjusted unemployment rate was 10.7% in January 2012, compared with 10.6% in December 20114. It was 10.0% in January 2011. The EU27 unemployment rate was 10.1% in January 2012, compared with 10.0% in December 2011. It was 9.5% in January 2011. Eurostat estimates that 24.325 million men and women in the EU27, of whom 16.925 million were in the euro area, were unemployed in January 2012. Compared with December 2011, the number of persons unemployed increased by 191 000 in the EU27 and by 185 000 in the euro area. Compared with January 2011, unemployment rose by 1.488 million in the EU27 and by 1.221 million in the euro area. Here's a look at the troubling EU unemployment trend: Read the full release, and get a country-by-country breakdown here .

After twelve hours of meetings in Brussels, European Union leaders have agreed to a 130 billion euro ($170 billion) bailout of Greece . This was seen as a last minute deal to stave off Greek default. But there is much work to be done. As Dow Jones 's Terence Roth tells his colleague Nick Hastings , this agreement was essential because it gives Greece's leadership just enough time to do all it must do to avoid collapse.