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

the sting Milestone

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 the powerful science of behaviour change can make us healthier

Climate change: won or lost in cities or by cities?

Terrorist content online: MEPs agree to start negotiations with EU countries

The megatrend that will shape our working future

Skeptic France about Trump-Juncker trade deal favoring German cars; EU’s unity in peril

Will Cameron succeed in keeping UK inside the EU and reverse the present economic downturn?

What will Germany look like after the next election?

Guterres welcomes conduct of Afghan elections, commends ‘all who braved security concerns to uphold their right to vote’

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

Not faith, ‘but those who manipulate the faithful’ driving wedge between religions, UN-backed forum in Baku told

3 ways digitalization will help end crime

DR Congo: Insecurity and attacks mean Ebola will keep spreading, warns world health agency

4 reasons cities should embrace Universal Basic Income

Lithuania should find its own way in the EU

Opening – EP remembers Nelson Mandela and mourns attacks on Roma in Ukraine

The battle for the 2016 EU Budget to shake the Union; Commission and Parliament vs. Germany

Drought in Europe: the Commission offers further support to European farmers

What will it take for the world’s third-largest economy to empower women?

EU approves disbursement of €500 million in Macro-Financial Assistance to Ukraine

EU is officially in recession

A Sting Exclusive: Young people are right about climate change; it’s time to listen

Minsk “ceasefire” leaves more doubts than safety, with EU already planning steps further

Young people are Europe’s biggest value and hope

The issue of mental health for modern young doctors

Towards a tobacco free India

This new way of understanding disease is changing medicine

This US city put an algorithm in charge of its school bus routes and saved $5 million

Russia must urgently step up fight against foreign bribery

Central African Republic: UNICEF outlines key actions so fresh peace deal can make real difference for children

Facts and prejudices about work

Immigrants make good entrepreneurs. This study proves it

Support ‘winds of change’ in DR Congo to consolidate positive developments, urges UN mission chief

Japan to invest in euro values

These are the world’s healthiest nations

EU growth in 2015 to be again sluggish; Can the Juncker Commission fight this out?

On World Bee day, human activity blamed for falling pollinator numbers

The Commission favours the cultivation of more GMOs in Europe

Christine Lagarde: the three priorities for the global economy

These photos show the world of science in stunning detail

UNESCO experts ready to assist reconstruction of iconic Notre Dame, following devastating blaze

Is sub-Saharan Africa ready for the electric vehicle revolution?

Commission provides 20 cities with funding for innovative security, digital, environmental and inclusion projects

Has the treacherous theory about the ‘French patient’ finally prevailed?

Commission’s report shows that targeted investment and robust digital policies boost Member States’ performance

The current devaluation of primary health care professionals

Brexit update: Tusk’s proposal is out and Cameron takes it all

Eurozone close to agreeing on a Banking Union

ECB to play down IMF’s alarms for deflation danger in the EU

The crunch ‘COP 24’ UN climate change conference: what’s at stake and what you need to know

In this ‘wildland’ farm in Britain, species thrive and yields are high

EU legislation protecting home buyers approved in Parliament

The 100-year climate catastrophe of Mont Blanc

Backed by UN, Asia-Pacific countries to advance space technology for ‘development transformation’

China and UK relations post Brexit as EU addresses Chinese takeovers

250 days until the European Parliament elections

UN commission agrees roadmap on ensuring women’s social protection, mobility, safety, and access to economic opportunities

Survivors of ISIL terror in Iraq want justice, not revenge, says head of UN investigation team

How India is solving its cooling challenge

Jellyfish are taking over the world – and climate change could be to blame

Increasingly under attack, women human rights defenders need better back up

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