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

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

Phone lines open between Ethiopia and Eritrea, and people are calling strangers

EU continues targeting on Chinese steel imports instead of the revival of its own economy

‘Terror and panic’ among Rohingya who may be forced to return to Myanmar – UN rights chief

SMEs and micro firms sinking together with south Eurozone

For video game addiction, now read official ‘gaming disorder’: World Health Organization

Euro-Mediterranean Assembly fixes its permanent seat in Rome

UN Forum examines three pillars of 2030 Global Goals

Why is the EU launching a doomed policy in stopping immigrant waves? What are the real targets?

The migration crisis is slowly melting the entire EU edifice

Global Citizen-Volunteer Internships

A European Discovers China: 3 First Impressions

Lies and reality about incomes and wealth in the EU

The EU Commission openly repudiates the austere economic policies

Parliament approves key directive regulating professional qualifications

UN chief welcomes resolution to 27-year-old disagreement over renaming the former Yugoslav Republic of Macedonia

EU unveils plan to accelerate Capital Markets Union ahead of London’s departure from the bloc

Key Brazilian border crossing for Venezuela refugees reopens as asylum numbers pass last year’s total

Digital development: technology-enabled, but human-centric

10 months were not enough for the EU to save the environment but 2 days are

London to say hello or goodbye to Brussels this week

MEPs want robust EU cyber defence and closer ties with NATO

Brussels enraged with Swiss referendum result to keep out EU citizens

Conflict and climate change challenge sustainable development effort: UN report

Nicaragua must end ‘witch-hunt’ against dissenting voices – UN human rights experts

Discussion at Europe House: Brexit & Food

No tears for Cyprus in Brussels and Moscow

China is building 8 new airports a year

FEATURE: Niger’s girls find sanctuary in fistula treatment centres

COP21 Breaking News_03 December: Unprecedented Global Alliance for Buildings and Construction to Combat Climate Change

A geared turbofan at Pratt & Whitney's production hub in West Palm Beach (copyright: Pratt & Whitney - a UTC Company- 2018; Source: Pratt & Whitney's website, media center)

The EU Commission approves UTC’s acquisition of Rockwell Collins under conditions

How bad could British healthcare get for its citizens abroad post-Brexit?

Cancer research put at risk by General Data Protection Regulation? The possible dangers of a data privacy EU mania

Teenage girl’s death sentence spotlights Sudan’s failure to tackle forced marriage, gender-based violence – UN rights office

Greece and Ukraine main items on EU28 menu; the course is set

Diversity training doesn’t change people’s behaviour. We need to find out what does

Let Nagasaki remain ‘the last city’ to suffer nuclear devastation says museum director, as UN chief arrives

UN Environment Assembly 2017: where the world convenes to #BeatPollution

European Parliament calls on Russia to end occupation of Georgian territories

France sneaks into the Geneva US-Iran talks to claim its business share in Tehran

Europe provides financial support to African countries while Turkey denies to change terrorism laws jeopardising the EU deal

Global Citizen-Volunteer Internships

‘Much more’ can be done to raise awareness about the plight of persons with albinism: UN chief

Rule of law in Hungary: Parliament should ask Council to act, say committee MEPs

“There are many converging visions and interests between the One Belt One Road initiative and the Juncker Investment Plan”, Ambassador Yang of the Chinese Mission to EU highlights from Brussels

The EU launches € 1 billion plan on supercomputers and tries to catch-up with competitors

The EU threatens to occupy Libya militarily; is another colonial war brewing?

Ukraine turns again to the EU for more money

How will the EU face the migration crisis when the Turkish threats come true?

Disintegrating Tories will void May’s pledge for Brexit deal in seven weeks

Is the West gradually losing Africa?

Devastating storms like Hurricane Florence ‘unusual this far north’: UN weather agency

How civil society must adapt to survive its greatest challenges

What washing your hands can teach you about global change

EU countries invested €5 trillion abroad

Why Microsoft is a regular to Almunia’s

AIESEC @ European Business Summit 2015: The power of an individual and how we can awaken Europe’s Youth

Where are people most proud to be European?

Brussels terrorist attacks: Schengen in danger once again while leaders gather Europe’s multiple broken pieces

Can the world take the risk of a new financial armageddon so that IMF doesn’t lose face towards Tsipras?

Paris agreed with Berlin over a loose and ineffective banking union

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