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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The three US financial war fleets

Achieving targets on energy helps meet other Global Goals, UN forum told

Industrial products: Lifting the last impediments in the EU single market

Poor Greeks, Irish and Spaniards still pay for the faults of German and French banks

EU makes key TTIP document public as protests get louder

EU budget: Will Germany alone manage Britain’s gap?

Imaginary Journeys Into Eternal China

The European Sting @ the European Business Summit 2014 – Where European Business and Politics shape the future

Only a few months away from the single European patent space

Sponsored content: when QUALITY meets OPEX in manufacturing

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

The mother of all fights about inflation, growth and banks

German and French bankers looted the Irish and Spanish unemployed

The importance of collaboration in the digital economy

EU plans to exploit the Mediterranean Sea and the wealth beneath it

EU leaders slammed on anti-tax evasion inaction and expensive energy

Close to final agreement on the EU Banking Union

Who cares more about taxpayers? The US by being harsh on major banks or the EU still caressing them?

Why David Cameron’s large victory in UK elections will not pursue a ‘Brexit’

The Council of Europe adopts Recommendation on young people’s access to rights

Lithuania finds the ways to maintain its energy security

Parliament approves €104.2m in EU aid to Greece, Spain, France and Portugal

The big challenge of leadership and entrepreneurship in Europe

ECB: A revolutionary idea to revitalize the European economy with cheap loans to SMEs

It’s EU vs. Google for real: the time is now, the case is open

The Parliament defies a politically biased Banking Union

Obama turns the G20 summit into warmongering platform

Banking Union: ECOFIN and Parliament ready to compromise

Dealing with stress among healthcare professionals: are we missing the elephant in the room?

EU Youth Conference in Riga concludes with recommendations for ministers

At global health forum, UN officials call for strong, people-focused health systems

Germany resists Macron’s plan for closer and more cohesive Eurozone; Paris and Berlin at odds

Entrepreneurial leadership: what does it take to become a leader?

UN chief welcomes DR Congo President’s promise to stand down

Memoirs from a unique trip to China: “my new old dragon” (Part I)

Iran: UN rights chief ‘deeply disturbed’ by continuing executions of juvenile offenders

The 28 EU leaders show contempt for the European Elections results

Commission presents far-reaching anti-tax evasion measures

What living abroad does to your self-awareness

The Commission accused of tolerating corruption and fraud in taxation

UN chief hails ‘very important role’ of Human Rights Council, as US withdraws, citing alleged bias

UN rights chief calls for international inquiry into Kashmir violations

The EU accuses Russia of bullying Ukraine to change sides

Parliament asks for the termination of EU-US bank data deal

Permanent structured cooperation (PESCO) on the table of NATO Defense Ministers amid US concerns

We don’t need to ban plastic. We just need to start using it properly

Eurozone banks are unable to support real economy’s dawning growth

Where do health literacy and health policy meet?

Why embracing human rights will ensure Artificial Intelligence works for all

China Unlimited Special Report: at the heart of Beijing

Google’s hot summer never ends: EC to launch ANOTHER antitrust inquiry against the American giant

Europe should make voice ‘more heard’ in today’s ‘dangerous world,’ says UN chief

Stability in Europe has no chances because of Ukraine

The Fourth Industrial Revolution is changing how we grow, buy and choose what we eat

Can the EU afford to block China’s business openings to Europe by denying her the ‘market economy status’?

Spanish and Polish voters are crying out for an imminent European change while US urge now Germany to change route

Africa’s inspiring innovators show what the future could hold

Investing in working conditions and quality jobs

Commission’s spending totally uncontrolled

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 )

w

Connecting to %s