Eurozone economy desperately needs internally driven growth

With economic growth in Eurozone proving to be weak, uncertain and widely varying between member states, government spending has become the only possible source of a much hoped for resumption of economic activities. On the other hand, stock exchanges have gained a lot since the beginning of the year, in a way that is not compatible with the overall bleak growth prospects. It seems that big business groups have managed to reduce labour and other costs and withhold investments in a way that has supported short-term profits to the detriment, however, of long-term prospects. At the same time, exports and activities abroad have become a solid profitability base for the big European corporations.

                        Development of total government expenditure and total revenue

                                                      2002-2012 (% of GDP)

Development of total expenditure and total revenue, 2002-2012 (% of GDP)

Small and medium-sized firms, though, depend more on internal developments. They are confronted with stagnating or falling home demand, lack of finance in many countries, they are unable to effectively control overheads and concentrate their cost cutting efforts on the labour force. As a result, the common denominator in the business sector all over Eurozone has become the control or even the reduction of labour force.

As if all that were not enough to undermine employment prospects in many countries, all Eurozone governments are cutting down their spending, in an effort to reduce deficits and state debt. Unfortunately, this tendency is not restricted to deficit countries. Even Germany is reducing government spending and actually posted a fiscal surplus in 2012. In this respect, government financial statistics have become a key for economic policy decision makers.

The public sector

In view of that, Eurostat, the EU statistical service, has produced a special report on government finance. According to this survey, “In 2012, the government deficit (net borrowing of the consolidated general government sector, as a share of GDP) of both the EU-28 and the euro area (EA-17) decreased compared with 2011, while general government debt increased”. This discrepancy between deficit and debt is not difficult to explain. Even the smallest fiscal gaps will add to debt. Unfortunately, in many Eurozone countries fiscal deficits are due to government support to banks, while spending in the real economy has even been reduced.

Eurostat Table. % of GDP

Eurostat Table. % of GDP

Consequently, real economy is burdened in both ways. Once by losing large parts of government expenditure and at the same time having to confront an increasing tax load, to serve rising public deficits and debt. The cases of Greece, Ireland, Portugal, Italy, Spain and some more countries are perfect examples of this last double problem. All those countries, probably at the exception of Italy, have to support their failing banks and simultaneously reduce public deficits by applying draconian austerity programmes. Italy is not obliged to support its banks, but cutting down government deficit was enough to send unemployment to record levels.

Government deficits

According to EU legislation, member states are obliged to keep their government deficits bellow the benchmark of 3% of GDP. Only a few manage to attain that. If deficits are large, the ‘excessive deficit procedure’ is triggered, obliging the country to apply austerity measures, as in the case of the abovementioned member states. Eurostat found that “In the EU-28 the government deficit-to-GDP ratio decreased from -4.4 % in 2011 to -3.9 % in 2012 and in the euro area it decreased from -4.2 % to -3.7 %. Germany registered a government surplus in 2012. There were eight Member States, which recorded deficits in 2012 that were lower than the -3% threshold. Deficit ratios were greater than or equal to the reference threshold of -3 % of GDP in 19 of the Member States in 2012: the largest government deficits (as a percentage of GDP) in 2012 were recorded by Spain (-10.6 %), Greece (-9.0 %), Ireland (-8.2 %), Portugal and Cyprus (both -6.4 %), and the United Kingdom (-6.1 %)”.

It becomes clear from the above passage, that only Germany managed to produce a fiscal surplus in 2012. Given that this country accounts for anything between one-fourth and one-third of Eurozone’s economy, its miser economic policy acts as a negative catalyst, dragging euro area down. Actually Germany is the only surplus country which can safely increase public spending and deficit, due to its robust internal finance, super low-interest rates and low indebtedness of both public and private sectors. Other surplus countries like Holland or Austria are small and suffer of private sector over indebtedness.

Public debt

Coming to the public debt chapter, the long-term negative effects of the still ongoing financial crisis are more than evident. Again Greece, Ireland, Portugal, Italy and Spain are in trouble exactly due to that reason. Their imprudent fiscal policies of the past or the overexposure of their banks to toxic investments have driven their financial obligations to the sky. Under the terms of the ‘stability and growth pact’, all EU member states are obliged to keep public debt below the benchmark of 60% of GDP. Very few and comparatively the smallest of them have managed that.

According to Eurostat, “In the EU-28 the government debt-to-GDP ratio increased from 82.3 % at the end of 2011 to 85.1 % at the end of 2012, and in the euro area from 87.3 % to 90.6 %. A total of 14 Member States reported a debt ratio above 60 % of GDP in 2012. At the end of 2012, the lowest ratios of government debt-to-GDP were recorded in Estonia (9.8 %), Bulgaria (18.5 %) and Luxembourg (21.7%). In 2012, government debt-to-GDP ratios increased for 22 EU Member States”. Germany’s public debt is slightly above 80% of GDP, largely exceeding the 60% benchmark.

Undoubtedly, Eurozone’s economy is not at its best. It’s not only governments that are deep in debt though. Euro area banks are also at risk with an inflated and super leveraged investment portfolio, surpassing by almost three times Eurozone’s GDP. In comparison, US banks have assets/investments of only 1.8 times the country’s GDP. That is why Eurozone desperately needs home-made economic growth, because exports alone cannot keep the light on at the end of the tunnel.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Yemen: Tackling the world’s largest humanitarian crisis

4 things to know about the state of conflict today

5 amazing schools that will make you wish you were young again

Yemen: 11 more ‘terrible, senseless’ civilian deaths reported, following attack in Sana’a – top UN official

Hiring more female leaders is good for profits. Here’s the evidence

Upgraded EU visa information database to increase security at external borders

Towards a zero tobacco public space in Cameroon

On International Youth Day the European Youth Forum calls for true youth participation

Theresa May expresses her optimism about Britain’s economic success while UK business outlook seems ominous

EU Leaders’ meeting in Sofia: Completing a trusted Digital Single Market for the benefit of all

We need a new Operating System for the Fourth Industrial Revolution

European Accessibility Act: Parliament and Council negotiators strike a deal

Interview with ourselves: the mental health of health professionals

Could entrepreneurship be the real cure against the side effects of Brexit?

CLIMATE CHANGE FOCUS: Lake Chad trees keep deadly drought at bay

Another doomed EU attempt to interfere in Libya?

It’s time to strengthen global digital cooperation

A Sting Exclusive: China’s Foreign Minister Wang Yi on South China Sea issue at the ASEAN Regional Forum

In Rwanda, high-speed drones are delivering blood to remote communities

Parliament sets up plan to fight the 3,600 criminal rings of EU

To all far-right partisans who exploit Charlie Hebdo atrocity: a peaceful reply given by a peaceful student

Preparing the future today: World Health Organisation and young doctors

Ensure that widows are ‘not left out or left behind’, UN chief urges on International Day

Member states jeopardising the rule of law will risk losing EU funds

Artificial intelligence: Commission takes forward its work on ethics guidelines

7 ways to break the fast fashion habit – and save the planet

EU budget: Commission proposes major funding increase for stronger borders and migration

Trump stumbles badly on his Russian openings; Europeans wary of Putin

EU mobilises €21 million to support Palestine refugees via the UN Relief and Works Agency

Your morning cup of coffee contains 140 litres of water

European Semester Autumn Package: Bolstering inclusive and sustainable growth

This surgeon runs a makeshift hospital for over 200,000 people

Marco Polo’s Dream

5 surprising ways to reuse coffee grounds

Youth Entrepreneurship Issue of the month: JEN, organisers of JADE October Meeting, on why JEs should come together

Global Citizen – Volunteer Internships

From Shadows to Sunlight, Paraguay’s Road to Transparency

UN postal agency ‘regrets’ US withdrawal

6 young leaders who are improving the state of the world on International Youth Day

Main results of EU-Japan summit which took place on 25/04/2019 in Brussels

These are the world’s most positive countries

European Business Summit 2014 Launch Event: “Energising Industrial Growth”

“Smoking steam instead of tobacco, are the E-cigarettes a safer alternative?”

Syria: ‘Deplorable’ violence in Idlib against civilians, humanitarian workers must ‘stop immediately’: UN Coordinator

Climate activist Greta Thunberg urges MEPs to put words into action

How music can help children with autism connect

‘Great cause of concern’ UN chief tells Security Council, surveying ‘bleak’ state of civilian protection

EU-UK: A deal synonymous to ‘remain’, England pays the Irish price

More refugees being helped by family, work and study permits, finds OECD and UNHCR study

UN chief welcomes re-opening of key Gaza border crossing

Human health – litmus paper for the climate change?

5 charts that explain big challenges facing Italy’s new government

UN chief welcomes new push by El Salvador’s political parties to begin fresh dialogue

Working Muslim women are a trillion-dollar market

New EU rules ensure better protection for 120 million holidaymakers this summer

US must abide by humanitarian refugee accords: UN refugee agency

Who is responsible for public health? The tendencies and its benefits –or not– on Health Education around the world

Statelessness for terrorists’ families, never an acceptable option, urges UN rights chief

UN police officer recognized for protecting vulnerable Somali women from abuse

European Youth Forum welcomes the European Commission’s proposed revision of the Union Code on Visas, however it does not go far enough

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s