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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Greece at the mercy of ECB while sailing through uncharted waters

Capital Markets Union: Making it easier for smaller businesses to get financing through capital markets

Charles Michel advocates a strong Europe that acts where it can add real value

These are the cities with the biggest carbon footprints

Crop yields are up in Syria, but higher prices still cause major strain: new UN report

Netherlands: Budget MEPs back €1.2m in job-search aid for 450 redundant workers

UN committed ‘to support the Libyan people’ as Guterres departs ‘with deep concern and a heavy heart’

“Decisions taken in the coming weeks will shape Europe’s experience of the internet”, Joe Mcnamee from EDRi says live from European Business Summit 2015

A new crop of EU ‘Boards’ override the democratic accountability and undermine the EU project

High unemployment to continue haunting the EU

Is there a new debt crisis on the horizon?

TTIP update: postponed vote and INTA meeting shuffle cards again

From his room with a view, UN chief takes to Instagram with an eye on hope and a brighter future

Your chocolate can help save the planet. Here’s how

AIESEC @ European Business Summit 2014: European Youth, Change Now Patiently

In visit to hurricane-ravaged Bahamas, UN chief calls for greater action to address climate change

Opposite cultures: Should it be a problem?

Margrethe Vestager, European Commissioner for Competition, in Brussels - Berlaymont, last week. (Copyright European Union, 2017 / Source: EC - Audiovisual Service / Photo: Lukasz Kobus)

Amazon, Luxembourg and Ireland hit by EU’s latest turn of the screw over competition

Education critical to ensure future of forests, and reverse their destruction

It’s time to gang up: a personal conflict on discrepancies in the medical community

The EU pretends not knowing what happens in the Western Balkans

For the future of Europe youth remains a priority

Bram in Colombia

Climate change and health: creating global awareness and using earth resources wisely

New rules to help consumers join forces to seek compensation

Main results of EU Environment Council, 25/06/2018

What can the private sector do to alleviate the refugee crisis?

EU Budget: A Reform Support Programme and an Investment Stabilisation Function to strengthen Europe’s Economic and Monetary Union

Brexit: Only Corbyn and May in concert can make the needed compromises

DR Congo: Electoral process advancing despite threat of armed groups, UN envoy tells Security Council

Clean Mobility: Commission tables proposal on car emissions testing in real driving conditions

European Commission recommends to the European Council (Article 50) to find that decisive progress has been made in Brexit negotiations

The umpteenth Italian overturn takes Renzi and PD to unprecedented victory at EU elections

Impact of high debt levels on least developed countries ‘cannot be overstated’, says UN

Country origin ‘best predictor of outcome’ for children with cancer, UN experts say

Better training ‘a necessary and strategic investment’ in peacekeeping that saves lives: Guterres

What is digital equality? An interview with Nanjira Sambuli

The European Brain Drain: a truth or a myth?

The influence of the multilateral agreement on migrant health

Over 330,000 Congolese migrants at risk after mass deportations from Angola – UN rights chief

The European Sting writes down the history LIVE from G20 Leaders’ Summit in Turkey

Four ways innovation can help to beat heart disease

We can build an inclusive workplace, and it starts with empathy

World ‘off track’ to meet most Sustainable Development Goals on hunger, food security and nutrition

This is where teachers are most (and least) respected

Civilians suffering due to sanctions must be spared ‘collective punishment’ urges UN rights expert

China’s impact as a global investor; the Sting reports live from World Economic Forum 2015 in Davos

Fairer and clearer rules on social benefits for EU mobile workers agreed

UN chief ‘following very closely’ reports of chemical weapons use in Syria’s Aleppo

IMF launches a new offensive against Germany

Responsible Artificial Intelligence

Here are 4 of the most politically charged World Cup games ever played

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

The time for cities to get smart is now

Juncker and Tusk killed Greece on 07 July 2015 to meet the Commission’s summer vacation plan? #Grexit #Greferendum #Graccident

EUREKA @ European Business Summit 2014: A European patent system can help European businesses lead industrial research and innovation on a global scale

The latest emoji are more inclusive – but who approves them?

EU imposes provisional anti-dumping tariffs on Chinese solar panels

The ASEAN Community sees the light: the genesis of a new powerful economic and political bloc and EU’s big opportunity

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