The Commission sees ‘moderate recovery’ but prospects deteriorate

Pierre Moscovici, Member of the European Commission in charge of Economic and Financial Affairs, Taxation and Customs, gave a press conference on the 2015 Autumn Economic Forecast. (EC Audiovisual Services. Date: 05/11/2015. Location: Brussels - EC/Berlaymont).

Pierre Moscovici, Member of the European Commission in charge of Economic and Financial Affairs, Taxation and Customs, gave a press conference on the 2015 Autumn Economic Forecast. (EC Audiovisual Services. Date: 05/11/2015. Location: Brussels – EC/Berlaymont).

The European Commission released last week its “Autumn 2015 Economic Forecast”, advertising ‘moderate recovery’ for the European Union and the euro area. Understandably, the Commission wouldn’t dig deeper in the economy, to highlight the negative aspects of the present status and the subdued prospects for next year. For a number of important reasons the executive arm of the EU is legitimized, to a certain extent, to tone down the negative sides and emphasize the positive points of the conjuncture. And this not only for the protection of its own home base. Brussels is obliged to think about the world markets too. A pessimistic conclusion could become a destructive self-fulfilling prophecy. This is the way markets work.

However, it’s not at all a convincing narrative to ascertain a ‘moderate recovery’ in an environment of stagnating employment and household incomes and zero or negative inflation rates. For this and some other equally important reasons, the exchange rate of the euro with the American dollar has been sliding downwards during the past few weeks, having by now reached the 1.07 quote. That is just some decimal points away from full parity between the two monies. This is not a negative prospect per se but it gives a good idea about how the EU and the US economies compare. Of course one has to add to that the divergence of the fundamentals of the two monies.

Fed and ECB agree to diverge

Not without good reason then the European Central Bank is preparing further relaxation of its monetary policy. It’s obvious by now that the euro area and the entire western economic and financial system needs additional injections of newly printed cash. The American central Bank, the Fed, cannot any more uphold the world’s liquidity alone. With an additional print of $4.5 trillion in four years it has reached its limits. It’s the ECB’s turn to take the baton, printing and injecting more hundreds of billions. This extra therapy is needed to hopefully energize the real economy, through increased quantities of financing being made available to consumers and producers.

The crucial point here though is, if the euro area banks which are about to receive the additional hundreds of free ECB billions, will be willing and able to pass it on to the real. Regrettably, the printing machine seems to be the only available policy tool to support the EU and through it the global economy. Regrettably, this is so because the governments in Washington, Berlin and the other western capitals are not willing to rethink the basics of economic policy, including the long-term growth potential of a more equitable distribution of income and wealth. There is an increasing cutting edge literature about that. Last year Janet L. Yellen, the boss of the American Fed, chose to focus on this issue in her inaugural speech. Let’s now return to the European Commission’s interpretation of reality.

Close to the zero line

The very first phrase in the Press release the Commission issued to broadcast its ‘Autumn 2015 Economic Forecast’ reads as follows: “The economic recovery in the euro area and the European Union as a whole is now in its third year”. Obviously this is at least an overstatement because there is no progress whatsoever in every important facet of the economy. Incomes, employment and prices all stagnate around or below the zero line. That is why, the writer of this Press release, probably sensing the exaggeration of the above affirmation, added that Europe “should continue at a modest pace next year despite more challenging conditions in the global economy”.

Clearly it’s not only the challenging conditions of the global economy which have subdued the EU economy. The global economy until some months ago adequately supported Europe’s stagnant GDP. Without the export surpluses Eurozone would have remained deep in the post crisis recession. Now though, that the developing economies do not develop as robustly, Europe has to support its economy by own means. For this and some other equally important reasons, Germany has agreed to the ECB’s extraordinary money injections to Eurozone’s financial system. Unfortunately, the three years delay that Berlin imposed on ECB’s action has held back the monetary therapy of the euro area, and this has now become apparent.

More modest pace in 2016

In short, the Commission’s ‘Autumn 2015 Economic Forecast’ rightly observes that the EU economy “should continue at a modest pace next year”. It would have been more economically correct though to say that “it should continue at a more modest pace next year”, despite ECB’s new monetary remedy. Without it the Eurozone and the global economy would suffer.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The 28 EU leaders care more about fiscal orthodoxy than effectively fighting youth unemployment

Greece @ MWC14: Greek-born mobile champions at MWC 2014

Scotland in United Kingdom: It’s either the end or the beginning of the end

G20 LIVE: G20 Statement on the fight against terrorism

Joris in Indonesia

Google strongly rejects EU antitrust charges and now gets ready for the worst to come

The US repelled EU proposals on common rules for banks

Eurozone 2013: Where to?

How much more social deterioration can the EU people endure?

Intel, Almunia and 1 billion euros for unfair potatoes

The succesful cooperation

Italy’s rescue operation Mare Nostrum shuts down with no real replacement. EU’s Triton instead might put lives at risk

Unanswered questions for Europe’s youth in President Juncker’s State of Union

It ain’t over until Google says it’s over

Migration crisis: how big a security threat it is?

Greece returns to markets at a high cost to taxpayers, after four years out in the cold

Why Commissioner Rehn wants us all to work more for less

TTIP: why it is worth not to pull the covers over your head?

EU Commission: a rise in wages and salaries may help create more jobs

Tax evasion and fraud threaten the European project

Fostering global citizenship in medicine

No way out for Eurozone’s stagnating economy

Britain heading to national schism on exit from EU

Cross-roads

The IMF sees Brexit’s ‘substantial impact’ while the world’s economy holds its breath

Is the EU competent enough to fight human smuggling in 2015?

OECD tells Eurozone to prepare its banks for a tsunami coming from developing countries

How Germany strives to mold ECB’s monetary policy to her interests

Banks suffocate the real economy by denying loans

Will Brexit shatter the EU or is it still too early to predict?

Assembly of European Regions @ European Business Summit 2014: The European regions on the path to recovery

Breaking barriers between youth in the new tech era: is there an easy way through?

IMF’s Lagarde indirectly cautioned Eurozone on deflation

Population in crisis hit EU countries will suffer for decades

Any doubt?

EU threatens Japan to suspend FTA negotiations if…

Migration crisis, a human crisis after all

The Banking Union divides deeply the European Union

A new crop of EU ‘Boards’ override the democratic accountability and undermine the EU project

Germany tries to save Europe from war between Ukraine and Russia

EU to gain the most from the agreement with Iran

EU countries invested €5 trillion abroad

What we need for a better European Solidarity Corps

Azerbaijan chooses Greek corridor for its natural gas flow to EU

ECOFIN: Protecting bankers and tax-evaders

French Prime Minister passes Stability Program and takes his ‘café’ in Brussels this June

Migration Crisis: how to open the borders and make way for the uprooted

EU Parliament raises burning issues over the FTA with the US

Why growth is now a one way road for Eurozone

The impossible end of the war in Syria

Access to healthcare: what do we lack?

Does EURES really exist?

Brussels wins game and match in Ukraine no matter the electoral results

New VAT rules in the EU: how a digital sea could have become an ocean

Yes, together we can make a change! YO!Fest and EYE 2016

ECB should offer more and cheaper liquidity if Eurozone is to avoid recession

Commission goes less than mid-way on expensive euro

Except Poland, can climate change also wait until 2021 for the EU Market Stability Reserve to be launched?

Why banks escape from competition rules but not pharmaceutical firms

What the US and the world can expect from the 8 November election?

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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s