How Europe beat the financial crisis – and the risks it still faces

Moscovici Greece 2018

Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs visit to Athens. © European Union , 2018 / Photo: Yorgos Karahalis.

This article is brought to you based on the strategic cooperation of The European Sting with the World Economic Forum.

Author: Kalin Anev Janse, Secretary General, European Stability Mechanism (ESM)

Ten years after the financial crisis, what is the most important news for me, coming from the other side of the channel?

It is that Europe is booming – and particularly, the euro area economy.

This impressive comeback is no coincidence. It involved a lot of hard work by many players. And before we turn to today’s bubbles and risks, I want to remind you of the fundamentals we built over the last years that underpin today’s success.

I met some 150 of our investors over the last year, all over the world. Increasingly, they see Europe as a safe haven. This has partly to do with the political uncertainties in the US and UK, but the main reason is the political achievements in the euro area. For those of you on Twitter, hashtag #EUROBOOM is still relevant.

So, what did Europe do?

Firstly, euro area countries implemented massive reform efforts. Some of the countries that received financial assistance from the European Financial Stability Facility (EFSF)/European Stability Mechanism (ESM), such as Spain and Ireland, have among the highest growth rates in Europe today.

European Commission: Winter 2018 Interim Economic Forecast
Image: European Commission: Winter 2018 Interim Economic Forecast

Secondly, the unorthodox policy measures by the ECB played a key role. Also on the list is the closer economic policy coordination between the euro area counties. This makes it harder to repeat the mistakes that led to the crisis. Next are the first two pillars of Banking Union – the Single Supervisory Mechanism, which now oversees the 130 systemically important banks at the European level, and the Single Resolution Board, which was set up to wind down failing banks across Europe.

Last but not least, the ESM, my institution, serves as a rescue mechanism for euro area countries that have lost market access. We were not there at the beginning of the crisis, but the ESM is a permanent institution, so we will be ready to fight the next crisis when it comes.

We have disbursed a total of €279 billion to programme countries. Funding these programmes has made us a key market player: we have issued more than 100 benchmark bonds and 130 bills over the last seven years.

These achievements would have been unthinkable only a few years back, but, as a result, the euro area economy is now back on track and rapidly growing again. The reduction in political risk after the French elections last year certainly supported this recovery.

Today’s risks

Understanding how we dealt with the last crisis is important also for thinking about today’s risks. In my view, there are three main sources of risk: cyclical risk, complacency, and new icebergs.

So, cyclical risk first.

The euro area economy grew 2.4% last year and is due to grow 2.3% this year. This is well above the potential, so at a certain moment growth will slow down.

Some countries, like Germany and the Netherlands, may already be close to moving to full employment. At the same time, asset prices – like stocks, alternative investments, and real estate – are at record highs.

Image: Eurostat

Some of these bubbles may be small, but you do want to be on time to spot which of these smaller bubbles has the potential to become big and cause greater damage to the economy.

The second source of risk lies in the fact that not all our policy responses are complete. These are the areas where complacency might kick in. Completion of the Banking Union is the first that comes to mind.

The Single Resolution Fund (SRF) needs a financial backstop so that it can handle even the largest bank failure. The SRF’s war chest will reach its final level of €55 billion in 2023. A backstop that would roughly double that amount through an ESM credit line of about the same size seems reasonable.

A more controversial issue is a common deposit insurance for Europe, which would make the banking system safer because it would prevent country-wide bank runs. Before this can happen, countries need to clean up the balance sheets of their banks. Otherwise, there is the risk that healthy banks in one country will need to pay for past mistakes made by their peers in other countries.

Further steps to deepen Monetary Union are also on the political agenda at the moment. One is developing the mandate of the ESM, and possibly turning it into a European Monetary Fund.

European integration has often accelerated the most during a crisis, and because the economy is doing well now, there is a risk of complacency and a delay of the reform efforts. Leaving some unfinished business will make us weaker to cope with future crises.

Crises often emerge when and where we least expect them. Therefore, we ought to be on the lookout for new unknowns.

The last source of risk is what I call new icebergs. Crises often emerge when and where we least expect them. Therefore, we ought to be on the lookout for new unknowns. What areas are we not paying enough attention to today? Let me give you a few candidates.

The first and most important one is cyber-security. This is a threat not only to the financial industry, but also to our global supply chains. The iceberg here is that while executive teams have a very good understanding of traditional market, credit, and operational risk, few are tech natives.

You can’t blame them though, because the average Darknet attacker or crypto-currency trader is between 15 and 25 years-old. They can bring companies down, and even entire banking or government systems. Recently, this happened in the Netherlands when the website of the tax authority was brought down for several hours. An 18 year-old hacker was later arrested over the crime. Do today’s top managers have the knowledge to prevent such events?

Another iceberg is formed by unregulated financial services and protectionism, and their implications for global economic trade and growth.

But let me conclude on a positive note: Europe has some unique assets that we can be proud of – great human talent, strong educational systems, and cities that continuously rank as the best places to live in the world. We are leading on ethics, social mobility, and democracy, so there is hardly a better place to live in the 21st century than Europe.

What gives me most optimism about Europe is our track record over the past 70 years of successfully dealing with crises, and coming out of them even stronger.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

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

Could switching between summer and winter time end in 2021?

Junior Enterprises as a solution for Youth Entrepreneurship

‘Champion for multilateralism’ readies to hand over UN General Assembly gavel

Royal Navy to unveil future surveillance and reconnaissance requirements next February in Rome

US resolution to condemn activities of Hamas voted down in General Assembly

How the future of computing can make or break the AI revolution

It’s ‘time for concrete action’ says UN chief, welcoming inter-Korean agreement

A European young student shares his thoughts on Quality Education

Medical training without borders: what’s still missing?

Human trafficking, slavery reports and health of migrants in Libya

Europe slammed by Turkey’s shaky Erdoğan; both playing with immigrants’ agony

Why Eurozone’s problems may end in a few months

China-EU Relations: Broader, Higher and Stronger

Heard about deepfakes? Don’t panic. Prepare

What the future holds for the EU – China relations?

Afghanistan probe: ‘at least 60 civilians’ killed after US military airstrikes on alleged drug labs

Madagascar: UN Secretary-General reaffirms support for electoral process

A Monday to watch the final act of a Greek tragedy; will there be catharsis or more fear?

Court of Auditors: EU budget money is there to be spent not to create value

Stricter rules to stop terrorists from using homemade explosives

Varna (Bulgaria) awarded European Youth Capital 2017

UNcomplicating the UN: a new podcast is born over coffee in New York

Rare Disease Day: a new EU platform to support better diagnosis and treatment

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

Time to make a fundamental choice about the future of healthcare

Alexis Tsipras against internal and external “enemies” in pursue of a two-phase deal now

The Commission accused of tolerating corruption and fraud in taxation

Trump’s MAGA policy remains unchanged as EU warns to impose additional retaliation tariffs on US products

The future of work ‘with social justice for all’ tops agenda of centenary UN Labour conference

Newly-elected Nigerian UN General Assembly President pledges focus on ‘peace and prosperity’ for most vulnerable

COP21 Breaking News_07 December: “The world is expecting more from you than half-measures”, UN Secretary General Bank Ki-moon cries out from Paris

Millennials aren’t voting – but these young leaders have a plan to change that

Military escalation will have ‘serious consequences’ for Yemeni civilians, warns UN Special Envoy

5 things you might not know about Leonardo da Vinci

10 reasons why today’s cyber leaders are tomorrow’s world leaders

Businesses are lacking moral leadership, according to employees

Summer 2018 Interim Economic Forecast: Resilient Growth amid increased uncertainty

Belgium: Youth Forum takes legal step to ban unpaid internships

UN global counter-terrorism strategy review an ‘overarching vision for the future’: Assembly President

The UN supports Europe’s military action in Libya and the Mediterranean; Russia and China agree

EU-Ukraine Summit: moving forward together in solidarity

MWC 2016 LIVE: Gamelab founder talks Apple TV, VR and monetisation

The Future of Balkans: Embracing Education

Yemen bus attack just the latest outrage against civilians: UN agencies

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

Brexit: the time has come for the UK to clarify its position

Why the ECB suddenly decided to flood banks with money?

G20 LIVE: G20 Antalya Summit in Numbers, 15-16 November 2015

Back to the Basics: Primary Healthcare

“Be aware where you put your I Agree signature on and something else”; now Facebook by default opts you in an unseen private data bazar

5G and the growing need for national CTOs

Trump’s denial of Paris climate agreement; the US Republicans lash out against the world

If the Current Situation in Hong Kong Arose in the West

Why the agtech boom isn’t your typical tech disruption

UN chief welcomes announcement by Emir of Qatar to allocate $50 million to support Syrian refugees, displaced persons

A ‘strong and united Europe’ has never been more needed, declares UN chief Guterres

Freshwater is saltier – and it’s bad for the planet and our health

Ceasefire holds in Tripoli, but core problems remain, says UN Libya mission chief

Scourge of slavery still claims 40 million victims worldwide, ‘must serve as a wakeup call’

Microplastics, microbeads and single-use plastics poisoning sea life and affecting humans, says UN Environment

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