No recovery for EU economy in sight and a Brexit can aggravate things for everyone

 Tom Segert, Director of Business Development of Berlin Space Technologies, on the right, providing some explanations on a technological feature to Valdis Dombrovskis, Vice-President of the EC. Dombrovskis visited Berlin to discuss economic and social policies in Germany and the EU. He also participated in a meeting to talk about the future of the Economic and Monetary Union. Date: 17/03/2016. Location: Berlin. © European Union , 2016 / Source: EC - Audiovisual Service / Photo: Steffi Loos.


Tom Segert, Director of Business Development of Berlin Space Technologies, on the right, providing some explanations on a technological feature to Valdis Dombrovskis, Vice-President of the EC. Dombrovskis visited Berlin to discuss economic and social policies in Germany and the EU. He also participated in a meeting to talk about the future of the Economic and Monetary Union. Date: 17/03/2016. Location: Berlin. © European Union , 2016 / Source: EC – Audiovisual Service / Photo: Steffi Loos.

The Eurozone economy doesn’t seem able to gain a sustainable growth path, despite the hundreds of billions that, lately, European Central Bank has injected into the financial system. Analysts say, though, that ECB’s intervention came too late. There is more bad news for the real economy coming from the prices front.

Last week, Eurostat, the EU statistical service published its flash estimate for the March inflation, finding it again below the zero line at -0.1%, from -0.2% in February. Very low or negative inflation has been prevailing in Eurozone for many years now and, indisputably, this is a very bad omen for the state of the entire economy.

Near the recession trap

At the same time, GDP oscillates just above the recession level for a sixth year in a row, because the economy is still suffering from the devastating effects of the 2008-2010 financial meltdown.  According to Eurostat, euro area’s (EU19) GDP rose by 0.3% during the last quarter of 2015, compared with the previous quarter.

This meagerly positive rate of growth is far from being enough to lead to a perceptible reduction of the double digit unemployment rate. Not to say anything about the dreadfully high jobless youth numbers in most EU countries. This is not any more just an economic problem, it has already become a social, political and a security predicament.

Manufacturing just about survives

In the heart of the economy, the manufacturing sector remains very close to the thin line which separates contraction from growth. According to Markit, a financial information and services company, the manufacturing Purchasing Managers’ Index (PMI) for Eurozone in March was estimated at 51.6 from 51.2 in February.

According to the configuration of the PMI index, the measurement of 50 is the dividing level. Below that, it’s recession, and above that, it’s growth. Visibly, Eurozone manufacturing remains barely above the surface level, unable to support a sustainable and noticeable recovery.

The quite unsatisfactory betterment of PMI from February to March has been recorded, despite the recent spectacular change of ECB’s monetary policy, from tightness to quantitative easing. The central bank, after many years of nonintervention policy decided in March 2015 to inject around €60 billion a month of almost zero interest rates, in the hope that this will be translated into increased financing, to revive the real economy. Soon this scheme will reach €80bn a month.

Unfortunately, it seems that the recipients of this money bonanza, the banks, do not fulfill their duty towards society. They withhold most of the money and use it for betting in the derivatives markets for quick but risky profits. If their bets come true, they keep the profits, if they come sour they ask the taxpayers to cover the losses. It was like that in 2008 and, alas, nothing has changed since.

The EU a net exporter

Still, the EU is a net strong exporter of goods and services. According to Eurostat in 2015, the 28 Member States exported a total of €4,861bn and imported a total of €4,707bn of goods. That leaves a trade balance in goods of €154bn. If you add the positive trade balance of services of about €750nb yearly, the EU records in total a lucrative trade balance of goods and services of around €900bn. That’s why the foreign value of the euro is so resilient compared with the dollar, despite the fact that the US grows faster than the stagnant Eurozone.

However, a large part of the excellent export performance of many EU countries, is based on the trade distortion in favour of intra-EU transactions, that the EU Customs union has produced. This is done by imposing straight forward import duties but not only; there is a long array of many other trade distorting measures favoring intra-EU exchanges, like ‘special’ technical standards, anti-dumping legislation etc.  As a result, around two thirds of the EU exports were directed last year to another EU member state. Only three countries, Germany, Ireland and Sweden had as first customer for their goods a country outside the EU.

Bad news for Britain

By the way, this is bad news for Britain. If this country decides next June to leave the protected market of the EU customs union, it will get itself into trouble. Soon, the British exporters will face mounting difficulties exporting to mainland Europe. Add to that the chronic problem that the UK has with its current account deficit of around 5% of GDP (transactions in goods, services and incomes), and the fervent ‘leavers’ will soon discover, that they vied to damage their country’s economy.  Oddly enough, this fact is not used as a prime argument by the ‘stay’ in the EU camp.

In conclusion, under the current bearish economic circumstances, a possible Brexit will come as a blow to both the UK and the EU. Fortunately, the latest polls still give the ‘stay’ side a lead. In any case, the referendum is already affecting the economic climate in Britain and in mainland Europe and the impact will increase as we approach Thursday 23 June. Unfortunately, though, the rather more probable ‘stay’ outcome doesn’t seem enough to lift the entire EU economy.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

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

How women in developing countries can harness e-commerce

Climate change is forcing 20 million people a year from their homes, Oxfam says

Banks get trillions and the unemployed ECB’s love…

UN chief condemns terror attack in Kismayo, Somalia

Paradise islands of Pacific increasingly vulnerable to climate change, as UN boosts resilience

Having a baby during COVID-19 gave me new respect for the job ‘mom’

LEAGUE OF YOUNG VOTERS LAUNCHES TOOL FOR YOUNG PEOPLE TO COMPARE POLITICAL PARTIES AHEAD OF EU ELECTIONS

UN agency helps stranded Ethiopians return home, ending ‘harrowing migration ordeal’

Data show EU Economy in a stubbornly subdued state

Stronger partnerships with post-conflict countries needed to ensure ‘path towards durable peace’: UN chief

COVID-19: latest on evaluation and authorisation of vaccines

Europe is no longer an innovation leader. Here’s how it can get ahead

COVID-19 vaccines: MEPs quiz top officials on authorisation and contracts

Gender equality in STEM is possible. These countries prove it

Flexible jobs can make work-life balance worse, a German study finds

UN condemns deadly attack one of its vehicles

MEPs approve EU’s spending in 2017

Is Germany yielding to pressures for more relaxed economic policies?

Modernising EU justice systems: New package to speed up digitalisation of justice systems and boost training of justice professionals

The European Sting @ Mobile World Congress 2014, Creating What’s Next for the World. Can EU Policy follow?

Spring 2020 Economic Forecast: A deep and uneven recession, an uncertain recovery

These are the world’s most future-proof cities

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

Cyber-Risk Assessments: the vaccine for companies in the Fourth Industrial Revolution

Boris Johnson’s no-deal Brexit to differ when issued from 10 Downing St.

Some truths about the coronavirus, according to the World Health Organization

Do not jeopardise future-oriented EU programmes, say EP’s budget negotiators

Asylum: MEPs call for more solidarity among EU member states

Business should be joyful – just ask the sports world

Kids who live in the countryside have better motor skills, a study in Finland has found

Women must have an equal share in politics, say MEPs and national MPs

Jeroen Dijsselbloem new Eurogroup president

70 years after the Universal Declaration of Human Rights, this is why we need dignity more than ever

GSMA announces first speakers for Mobile 360 Series-Middle East and North Africa

Business could learn plenty about cybersecurity from the secret state

A Sting Exclusive: “Stronger Cybersecurity for a safer EU against cybercrime and cyber threats”, by MEP Dalli

Economic recovery won’t tackle youth unemployment problem

These are the countries that have made their climate commitments law

Yellen and Draghi tell Trump and markets not to expedite the next crisis

More than 90 per cent of Africa migrants would make perilous Europe journey again, despite the risks

Central African Republic: UN chief hails signing of new peace agreement

What Keynes can teach us about government debt today

COVID-19 and its empathic social lessons

MEPs back first EU management plan for fish stocks in the Western Mediterranean

The costs of corruption: values, economic development under assault, trillions lost, says Guterres

Green economy ‘not to be feared, but an opportunity to be embraced’ says UN chief as COP25 gets underway

Vaccination: understanding the challenges surrounding COVID-19 vaccination campaigns

Commission approves emergency measures to protect eastern Baltic cod

Coronavirus: EU funding for the transport of medical goods, medical teams and patients

Importance of teaching ethics in Brazilian Medical Schools

New EU telecom rules: latest actions in time for transposition deadline

Why the fight against nature loss should be a business priority

‘Bicycle Kingdom’ makes a comeback, as China seeks solutions to tackle air pollution crisis

Bosnia and Herzegovina: MEPs concerned by slow progress in EU-related reforms

CDNIFY @ TheNextWeb 2014

Global immunization is having its annual check-up. What can we learn?

Palliative care effectiveness at Universal Health Care: an eminent need

Women who crushed the gender barrier in medicine

Energy Union: EU invests a further €800 million in priority energy infrastructure

ITU Telecom World 2017 on 25-28 September in Busan, Republic of Korea

More Stings?

Trackbacks

  1. […] negotiations, according to the IMF, could drag on for years, leading to a period of heightened uncertainty and risk aversion, which in turn would discourage consumption and investment and roil financial […]

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