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

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

Rare diseases are more common than you might think

Eurozone: Uncertain future with unemployment ravaging the South

European Semester Winter Package: assessing Member States’ progress on economic and social priorities

At UN, Middle East countries discuss steps towards regional nuclear-free zone

3 ways business leaders can build digital trust

‘The time for action is now’ senior UN peacekeeping official says, urging support for regional force combating Sahel terrorism

There are more than 1 billion guns in the world and this is who owns them

From rescue animals to electric buses, California is introducing bold new rules

EU countries invested €5 trillion abroad

Young people are not a nameless, faceless mass. So why do we treat them as such?

‘Emulate his example’ urges UN chief as world celebrates Nelson Mandela: a ‘global advocate for dignity and equality’

Agreement reached on new EU Solidarity Corps

Let’s Learn

UNICEF chief hopes 2020 will be ‘a year of peace’ for Syria’s children

Chart of the day: Why marine protected sites matter more than ever

Stable growth momentum in the OECD area

‘Everyone needs to do more’ to help suffering Venezuelans, says UN Emergency Relief Coordinator

World Summit Awards 2016: Sustainable impact through digital innovation

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

Continuing incarceration of women’s rights activists in Saudi Arabia, ‘reprehensible’: UN experts

EU prepares a banking union amidst financial ruins

EU budget: Stepping up the EU’s role as a security and defence provider

Here are three ways organizations can prepare for tomorrow’s world

A Sting Exclusive: “Global Climate: Our Common Responsibility”, S&P MEP Miriam Dalli underlines from Brussels

Eurozone: Retail sales betray economic frailty

Anti-vaccination movement affecting youth in Europe

3 leaders on creating a pipeline for female talent in business

New UN forestry project bids to help countries meet climate change commitments

Promoting Health in the Brazilian Amazon: one nation but many cultures

Switzerland has the most highly skilled workers in the world. This is why

The IMF sees Brexit’s ‘substantial impact’ while the world’s economy holds its breath

Smart devices must come with trust already installed

This is the environmental catastrophe you’ve probably never heard of

EU-China Light Bridge in Brussels signals the bright coming of the Year of The Dog

Asylum seekers in Sri Lanka fear for their safety, in wake of Easter Sunday terror attacks

Informal meeting of heads of state or government, Sibiu, 09/05/2019

Elections in Europe: No risks for the EU, leaders readying to face Trump-Brexit

MEPs push for high ambitions at the COP25 in Madrid

‘Cataclysmic events’ in Hiroshima, Nagasaki, began ‘global push’ against nuclear weapons says Guterres, honouring victims

How Finland is fighting fake news – in the classroom

How can consumers be effectively protected from insurance sellers?

UN forum to explore use of outer space to improve lives, protect planet

Security Council renews Central African Republic arms embargo

EU plans pan-European network of cybersecurity services

4 reasons cities should embrace Universal Basic Income

The Working Methods of the von der Leyen Commission: Striving for more at home and in the world

Central American migrants must be protected, urge UN experts

World faces ‘climate apartheid’ risk, 120 more million in poverty: UN expert

From UN Assembly podium, Central African Republic leader appeals for lifting arms embargo

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

Greece returns to markets at a high cost to taxpayers, after four years out in the cold

Nearly $4 billion needed to protect 41 million children from conflict and disaster

DR Congo: Ebola response resumes despite ‘risky environment’

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

MEPs propose more transparent legislative drafting and use of allowances

Fuel crisis rapidly draining last ‘coping capacities’ of Palestinians in Gaza

Scientists now think air pollution is fuelling violent crime

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

On the euro but out of it?

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

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