No hard drivers in sight to remodel the stagnating affairs of the EU

Euro Summit on Greece. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Jean-Claude Juncker, President of the European Commission, Mario Draghi, President of the European Central Bank (ECB), and François Hollande, President of the French Republic (from the left to the right). Date: 22/06/2015. Location: Brussels - Council/Justus Lipsius. © European Union, 2015 / Source: EC - Audiovisual Service / Photo: Etienne Ansotte.

Euro Summit on Greece. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Jean-Claude Juncker, President of the European Commission, Mario Draghi, President of the European Central Bank (ECB), and François Hollande, President of the French Republic (from the left to the right). Date: 22/06/2015. Location: Brussels – Council/Justus Lipsius. © European Union, 2015 / Source: EC – Audiovisual Service / Photo: Etienne Ansotte.

It’s a tautological statement to say that the euro area is an economy which barely moves ahead, towards producing more jobs and incomes for the tens of millions of the unemployed and materially deprived. However, it seems that it’s worse than that. Mario Draghi, the President of the European Central Bank, said it plainly in his statement at the thirty-third meeting of the International Monetary and Financial Committee, in Washington DC some days ago.

New and old phantoms

On 15 April, Draghi in detail but tactfully explained what is wrong with the European economy. He said “…euro area growth remains faced with uncertainty, mainly as a result of downside risks to growth prospects in emerging market economies, a clouded outlook for oil prices and their economic implications, and also geopolitical risks”. He went on by stressing that the outlook for inflation is now depressed not only by those new risks but also because of “the materialization of some of the existing ones”.

He was quite right. Only the previous day, on 14 April, Eurostat, the EU statistical service, confirmed that inflation had leveled out in March at the zero line with a reading of 0.0%. Despite the fact that this was kind of better than the -0.2% of February, things are not at all favorable for Eurozone. The reason is that inflation and consequently growth are stuck for too long at too low levels, namely around zero. Draghi concluded that Europe needs a new economic policy mix. He described it as follows: “decisive implementation of structural reforms and greater progress towards sustainable and more growth-friendly public finances is necessary”.

Old structures and blocked public finances

Unfortunately, structural reforms are turned aside by governments, because of the political cost and the initial discomfort to many that they entail. Greece is a standard case of that. There are more countries though, Germany included, which feel sheltered with their existing but, to a certain extent, outdated economic and financial structures. The banking industry structures and the market services sector are characteristic cases of that. As for the growth-friendly public finances, those are blocked by Berlin and some other capitals who act like Eurozone’s guardians of fiscal orthodoxy.

In short, the policy mix that Eurozone follows during the past few years favors the existing structures in the financial sector (protecting the ‘systemic’ banks) and safeguarding the existing productive apparatus. Despite the unprecedented fall of the cost of money, investments in infrastructures and the industrial sector remain bearish. This practice had led to persistent fall of the industrial produce. During the past six years that is, from November 2010 till today, industrial production oscillates in a region between 15% and 10% below the levels of February 2008.

Counting on the rest of the world

As a result official unemployment remains in the double digit region, while the youths without a job are double that. Still, Eurozone’s foreign trade leaves a sizeable surplus that effectively supports the foreign value of the euro. According to Eurostat “The first estimate for euro area (EA19) exports of goods to the rest of the world in February 2016 was €163.5 billion, an increase of 1% compared with February 2015 (€161.4bn). Imports from the rest of the world stood at €144.4bn, a rise of 2% compared with February 2015 (€141.5bn)”. A monthly trade balance of €19.1bn is impressive, without counting the equally important surplus of services trade. This is tantamount though to counting on the rest of the world for growth at home. Everybody agrees that large trade and service surpluses ‘steal’ jobs from trade partners.

In any case, the euro area is a traditional a net exporter of goods and services to the rest of the world. As noted above, this fact effectively supports the relatively high levels of the foreign value of euro, making it an expensive currency. This is a double edged reality. For one thing, it nurtures a mentality of security that doesn’t favor renovation.

A double edged security

At the same time, the expensive and strong euro undermines the export prospects of the less competitive EU producers. For example, the German car industry and more generally the engineering industry of this country has a traditional advantage, making it strongly exports oriented. The result is that Germany in this way supports an expensive euro, which hinders the export efforts of the agricultural, food and other products that the EU’s south specializes in.

This reality may seem as a fact of life that cannot be changed. At the same time though, it constitutes a very strong impediment in the process of a closer Union. Exactly for this reason the southern EU countries have come at times to the point of questioning their participation in a monetary zone of such a strong currency. Greece and Italy are the first member states to have come close to that, while France and Spain also seem perplexed.

Contesting the euro

This reality has also darkened the political horizon in the above mentioned member states. The same is true but for different reasons for the Visegrad countries (Czech Republic, Hungary, Poland and Slovakia). The rise of eurosceptic extremist parties on both edges of the political spectrum in all those countries stands as an infallible witness of that.

The same mechanisms but ‘a contrario’ have fashioned and strengthened extreme rightwing parties in the north (Germany, Austria, Sweden, Finland, Holland and Belgium). The migration predicament proved that the connecting material of the EU has thinned to dangerous levels. No EU institution today has the ability to inspire respect and command Union authenticity in view of all the 28 countries and the even more numerous political parties.

What about ECB?

As it turns out, the only EU institution with true European motives and vision remains the European Central Bank of Mario Draghi. But then again this is restricted to the 19 euro area member states, with some of them questioning its role. The ECB tries, at times in vain, to unify the Eurozone financially, by adopting monetary measures aimed at the creation of a level playing field for all. However, Draghi recognizes that monetary policy alone cannot do that. So he insists that “In particular, reform efforts need to be stepped up to improve the business environment, which in turn will help increase productivity, employment and growth….Fiscal policies should (also) support the economic recovery”.

But this is the job of the politicians to accomplish and unfortunately there is very little action to this direction if any. Most political leaders are petrified with the political cost and with very few exceptions are following personal agendas. In short, there are no hard drivers to change the stagnating affairs of the EU.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

At COP24, countries agree concrete way forward to bring the Paris climate deal to life

Health without borders: How we can Improve International Collaboration in Health Care

A Sting Exclusive: “Technology for all, development for all: the role of ITU”, written by the Secretary General of the United Nations Agency

Suffering of thousands of war-affected Syrian children ‘unprecedented and unacceptable’

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

The vehicles of our future

Dear China

The big challenge of leadership and entrepreneurship in Europe

‘Stealing’ food from hungry Yemenis ‘must stop immediately’, says UN agency

Eurozone: A crucial January ahead again with existential questions

New book honours UN women who made HERstory

‘Dire consequences’ for a million children in the Middle East, North Africa, as funding dwindles

Main results of Asia-Europe Meeting (ASEM) – 18-19/10/2018

Who is culpable in the EU for Ukraine’s defection to Russia?

Reinforcing EU border security: Visa-exempt travelers will be pre-screened

Stricter rules and tougher sanctions for market manipulation and financial fraud

Impressive African health gains at risk from changing trends: WHO report

In Tokyo, UN chief expresses full support for US-Japan dialogue with North Korea

How did Facebook fool the Commission that easily during the WhatsApp acquisition?

The Catcher in the Rice

Obama, Crimea and the TTIP pill

IMAGINATION, FACTS AND OPPORTUNITIES – THE UNLIMITED POWER OF CHINA

Twenty days that may remold the future of Europe

Who should be responsible for protecting our personal data?

A third of world’s out-of-school youth live in conflict, disaster-affected countries: UNICEF report

EU finally agreed to cut roaming charges in 2017 but criticism is always there

Everyone has ‘a moral imperative’ to uphold the rights of persons with disabilities, says UN chief

Tackling water scarcity: 4 ways to pull H20 out of thin air

CHINA UNLIMITED. PEOPLE UNLIMITED. RESTRICTIONS LIMITED

Scotland “shows the way” to separatist movements as Catalonia calls a vote on independence

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

South Eurozone needs some…inflation and liquidity

#Travelgoals: why Instagram is key to understanding millennial tourism

How technology is leading us to new climate change solutions

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

“Is Europe innovative? Oh, Yes we are very innovative!”, Director General of the European Commission Mr Robert-Jan Smits on another Sting Exclusive

UN chief applauds Bangladesh for ‘opening borders’ to Rohingya refugees in need

How to end overfishing in the global South

Humans aren’t made for repetition – it’s time AI took over manufacturing

China and China-EU Relations in the New Era

UN chief ‘deeply alarmed’ over military offensive in south-west Syria

OECD Secretary-General Gurría welcomes announcement of new trade agreement between the US, Mexico and Canada

Macron in St. Petersburg didn’t oppose Trump on Iran, in Putin’s presence

The Parliament rejects cultivating the wrong seeds of the Commission

Inclusion and diversity isn’t just good for employees – it’s good for the bottom line

The ECB still protects the banks at the expense of the EU taxpayers

Should Europe be afraid of the developing world?

China is a renewable energy champion. But it’s time for a new approach

The ECB tells Berlin that a Germanic Eurozone is unacceptable and doesn’t work

Why medical students decide to study abroad?

Celebrating the Customs Union: the world’s largest trading bloc turns 50

A Young entrepreneur cries out: “start in Europe, stay in Europe”

Amsterdam is getting a 3D-printed bridge

Imaginary Journeys Into Eternal China

How Eurozone consumers spend their income when they have one…

A renewed agenda for Research and Innovation: Europe’s chance to shape the future

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

The representatives of the regions and the cities know better what the EU needs on migration, trade, poverty and taxation

Bram in Colombia

How much time has the ‘European Union of last chance’ left?

More Stings?

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