THE END OF EUROPE (AS WE KNOW IT)?
As the Eurozone is amid secular stagnation, its old fiscal, monetary and banking challenges are escalating, along with new threats, including the Brexit, demise of Schengen, anti-EU opposition and geopolitical friction. According to Dan Steinbock, Brussels can no longer avoid hard political decisions for or against an integrated Europe, with or without the euro.
Since 2010, European leaders have been deferring the hard decisions. Occasionally, there have been political reasons for delays. Yet, times of crises cry for leadership.
Economically, procrastination has sustained the semblance of continuity in the short- term. Politically, it has maintained the status quo of “integration without common institutions”, which is unsustainable. Strategically, it has resulted in misguided military policies that threaten to undermine what is left of the unity of the region.
Time is out and delays are no longer an option.
From cyclical contraction to secular stagnation
The numbers are not encouraging. While the Eurozone (EZ) is amid a fragile cyclical rebound, it is barely breathing as quarterly real GDP growth is at barely 0.3% and inflation close to zero. After half a decade of economic pain, the region will struggle for 1.5% growth. In the coming decade, that will slow close to 1%.
When the global financial crisis hit Europe its core economies – Germany, France, the UK and Italy – relied on relatively generous social models for cushion, but structural challenges were deferred. In spring 2010, the European sovereign debt crisis was still seen as a liquidity issue and a banking crisis. As Brussels launched its €770 billion “shock and awe” rescue package, it was expected to stabilise the EZ.
However, Brussels and the core economies failed to provide adequate fiscal adjustment, which made mass unemployment a lot worse and continues to penalise confidence, demand and investment.
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