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

Featured Stings

High-technology manufacturing saves the EU industry

Mobile young people create the European labour market of tomorrow

G20 LIVE: “International communities and leaders have great expectations for 2016 G20 summit in Hangzhou China”, Mr Wang Xiaolong, the Chinese Foreign Ministry’s special envoy stresses live from G20 in Antalya Turkey

ECB indicates south Europeans can endure more austerity

Parlamentarians to “break up” with reality in the Google antitrust case

Why growth is now a one way road for Eurozone

Europe eyes to replace US as China’s prime foreign partner

World Health Organisation and young doctors: is there any place for improvement?

Trump enrages the Europeans and isolates the US in G7

Google’s bare truth: Europe’s Chief denies EU accusations but admits they “don’t always get it right”

GradList Launched At TheNextWeb 2014

The challenges of mental health among the Syrian medical students

What can stop the ‘too big to fail’ bankers from terrorising the world?

COP21 Breaking News_10 December:#ParisAgreement: Points that remain in suspense

The EU cuts roaming charges further while the UK weighs Brexit impact

COP21 Breaking News_05 December: Children Will Bear the Brunt of Climate Change: UNICEF

European Citizens’ Initiative: A game of much publicity and one big lie

Starbucks and FIAT again under Commission’s microscope: is Europe ready to kick multinationals out of the house?

Eurozone: Despite anemic growth and shaky banks marks record trade surplus

UK economy in dire straits: leading banks now officially plan to Brexit too

UN Human Rights Council resolution on youth and human rights: a step forward for youth rights

Can the next financial crisis be avoided?

ECB guarantees the liquidity of the Atlantic financial volume

230 Junior Entrepreneurs and over 70 guests attended the International Congress on “Entrepreneurial Skills for Youth”

On Youth Education: “Just a normal day in the life of a medical student”

The Indian case: health policies need to keep pace with public health literacy

The new EU “fiscal compact” an intimidation for all people

The developing countries keep the world going

More taxpayers’ money for the banks

Jeroen Dijsselbloem new Eurogroup president

European Youth Forum demands immediate action & binding agreement on climate change

Turkey to let EU alone struggle with the migrant crisis while enhancing its economic ties with Russia instead?

The strong version of the EU banking union gains momentum

Refugee crisis update: EU fails to relocate immigrants from Greece and Italy

IFMSA and IPSF on the Health of Migrants and Refugees

France and Poland to block David Cameron’s plans on immigration

COP21 Breaking News_12 December: Another sleepless night for the negotiators before Indaba meeting

Commission deepens criticism on German economic policies

Let your fingers do the walking

18th EU Eco-Innovation Forum in Barcelona shows the way for Europe’s new Environmental policy

Copyright: European Union , 2017; Source: EC - Audiovisual Service; Photo: Frank Molter

EU hits deadlock on the future of glyphosate a month before deadline

Brexit uncertainty keeps shaking the world’s financial markets

SMEs and micro firms sinking together with south Eurozone

The EU finally seizes the opportunity to support the sharing economy?

China invites the EU to a joint endeavor for free trade and order in the world

Germany loses leading export place

Why exchange programs are essential for the medical students of the 21st century

EU finally agrees on target for 40% greenhouse emission cuts ahead of Paris climate talks

MEPs and European Youth Forum call on EU to Invest in Youth

EU to Telcos: Stop Mergers and Acquisitions but please help me urgently with 5G development

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

Falling inflation urges ECB to introduce growth measures today

Bank resolutions and recapitalisations by the ESM may end up politically swayed

Cameron’s “No Brexit” campaign wins top business support as Tory front breaks

Knowledge management and entrepreneurship: short term vs. long term perspective

Do the giant banks ‘tell’ Britain to choose a good soft Brexit and ‘remain’ or else…?

SoftLayer, an IBM company, @ TheNextWeb 2014: Masters of Failure and Change

May a parody constitute a copyright infringement? European Court of Justice to give the answer

Terrorism and migrants: the two awful nightmares for Europe and Germany in 2016

Draghi reserved about Eurozone’s growth prospects

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 )

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