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

CDNIFY @ TheNextWeb 2014

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Refugee crisis update: Commission is struggling alone with little help from EU or G7 leaders

This is how people in Europe are helping lead the energy charge

Quality Internships: Towards a Toolkit for Employers

Malta and Slovakia: serious shortcomings in the rule of law

This robot has soft hands. It could be the future of sustainable production

Love unlimited

Banking package: Parliament and Council reach an agreement

Defence: European Commission paves the way for first joint industrial projects under EU budget

The anti-vaccine movement shows the peril of a post-truth world

Everything you need to know about water

Reform of road use charges to spur cleaner transport and ensure fairness

Protests, violence in Haiti prompts international call for ‘realistic and lasting solutions’ to crisis

It’s time to fulfil the promises made to women 25 years ago

JADE Spring Meeting 2016 highlights

The JADE Spring Meeting is about to begin

European Youth Event 2016 – bridge between youth and policy makers

Contact the Sting

China in My Suburbs

World Population Day: ‘A matter of human rights’ says UN

Cybersecurity needs a holistic approach. Here are three ways to build protection

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

European Commission reacts to the US restrictions on steel and aluminium affecting the EU

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

Why carbon capture could be the game-changer the world needs

How telehealth can get healthcare to more people

Two days left until General Data Protection Regulation (GDPR), lots of newsletter opt-outs but does the EU citizen really know?

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

From glass ceiling to glass cliff: women are not a leadership quick-fix

MEPs vote to limit negative impact of no-deal Brexit on citizens

How tomorrow’s buildings will make you – and the planet – healthier

Mainland Europe adopts Germanic cartel business patterns

UN nuclear watchdog will help verify DPRK nuclear programme, if agreement forthcoming

FROM THE FIELD: How the smell of fresh bread transformed one refugee life

Economic sentiment and business climate stagnate in miserable euro area

The EU Commission lets money market funds continue the unholy game of banks

The power of digital tools to transform mental healthcare

“The Belt and Road Initiative should be mutually beneficial for EU and China and every participating country”, Vice-President Papadimoulis of the European Parliament underscores from European Business Summit 2018

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

Drugs cost too much. There is a better way to fund medical innovation

Make progress or risk redundancy, UN chief warns world disarmament body

Is there a way out of the next financial crisis? Can more printed money or austerity save us all?

Here’s what a Korean boy band can teach us about globalization 4.0

Blockchain can change the face of renewable energy in Africa. Here’s how

From inconvenience to opportunity: the importance of international medical exchanges

Promoting rule of law and fundamental rights in the EU

How can we regulate disruptive technologies?

Parliament backs a modernised EU electoral law

Supercomputing could solve the world’s problems, and create many more

Globally, youth are the largest poverty-stricken group, says new UN report

Risks rising in corporate debt market

Amazon indigenous groups want to create a nature sanctuary the size of Mexico

Unlock the value proposition for Connected Insurance

Managing and resolving conflicts in a politically inclined group of team members

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

Mali: UN chief calls for calm as clashes leave over 20 dead in Mopti

Is Erdogan losing game and match within and without Turkey?

The Council unblocks all EU budgets

Italy’s revised budget remains roughly unchanged waiting for Europe’s fury

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