Is Europe’s recovery a sustainable one?
We all know of Europe’s economic
recession and the Euro chaos that hit periphery countries like Ireland, Greece
and Portugal since 2008. The slide in living standards, sky-high unemployment
and governments in constant disagreement could do more to allay our fears for a
better future.
So, now looking at some recent
metrics, domestic demand is expected to grow real GDP by 1.4% in 2014 and 1.7%
in 2015, which of course is positive. May’s figures showed an unemployment rate
ranging from Spain’s 25.1% down to Austria’s 4.7%. Unemployment in the Euro
area was at 11.6% and the European Union as a whole was at 10.3%. The PMI
composite index is at 52.8 in June, which is slightly down from May but
continuing to signal expanding economic activity (50+ is expansion). Inflation
is expected to remain stable around .5% to 1% for the foreseeable future. It’s
also also noteworthy to think of all this and the size of the European Union,
which is at 505 million people over 28 sovereign nations.
So, after an awful 7 or so years,
we Europeans are on the road to recovery, but is it sustainable and will it
succeed? In thinking about this question, one should consider the following points
as material to the answer.
Debt Burden. The debt
shouldered by sovereigns to support the banks and their blistering mistakes
over time has left many countries in great crises with austere fiscal
adjustments hitting their societies extremely hard. The OECD being the most
optimistic predicts EU “Debt to real GDP” by 2020 will be at 160% with the EU
Troika’s target of 134% heralded as untenable assuming current real GDP growth
rates (c.1.5%) continue. Countries will struggle across the euro zone with debt
as a result, especially those who are not competitively structured for inward
investment in their economy. Currency devaluation once sovereign structural and
policy upgrades are complete should be considered if there is still a “debt
lag” in the economies of the sovereigns.
Investment. For Europe
to recover sustainably, countries that are not competitively geared up for
recovery, need to pursue policies of reform making commercial development of new
and established business easier with more effective
regulation replacing out-dated regularly practices. They also need to address
key issues like overly bureaucratic processes in some areas, lack of regulation
in others, corruption and plan for strategic growth areas such as exports and
domestic consumption.
War. The rising threat
posed by a seemingly deceptive Russia along with unstable Middle Eastern
countries has raised the priority of defence spending in Europe once again and
the need for defence investment. The requirements in Europe in partnership with
NATO partners like the US raise numerous security concerns that will need
funding and resources. The fiscal pressure given the debt burden of the region
should be weighted against the projected fiscal cost associated with risks of
increased asymmetrical attacks on EU soil, damage to reputation and business
affecting investment and industry alike.
Energy. Europe’s
scope for economic stagnation should not be overlooked when you think of how
paralysing an energy crisis can be even in gas. Manufacturing is heavily
dependant on energy and water to function and grow. Without it, the wheels of
our European economic recovery will grind to a halt. Consideration to multiple
vendors for gas should given noting Germany already has such arrangements in
place.
Political Relations. Russia,
China and the host of issues with sovereigns in the Middle East impact the trajectory
curve of Europe’s recovery. The export market for Europe requires stability and
for stability to be sustainable, the resolution of many geo political conflicts
and issues is of utmost priority. Without it, the key export markets for the EU
will be in vulnerable to destabilising world forces interrupting international
trade via conflict and/or improper trade conduct.
US. The
stalled free trade EU-US deal (TAFTA) is the highlight here, which has huge
positive and negative potential for the EU.
The US is a key trading and security partner with Europe and cross Atlantic
cooperation with the US should continue to secure lucrative deals such as “TAFTA”.
That said, sovereign rights should not
be overlooked given the ambition of some lobbyists to have rights of dictation
to nations on what laws are permissible and what are not. In essence, for a
sustainable recovery in Europe, any deal must create a value spread to the
regional societies and not extract value from said societies.
We have a long road to economic
recovery in Europe but have made considerable progress with forward signs
signalling the economic momentum is increasing within the Union. However, to be
sustainable, we need to address our deficiencies, build on our efficiencies and
remember the welfare of our children’s children when building a sustainable
tomorrow today!
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