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I was in Belgium in 2011-2012, when I witnessed the escalating ferocity with which the sovereign debt crisis undermined confidence and economic activity across the Eurozone. Four years later, in 2016, economic recovery from the crisis continues to remain fragile – with highly lackluster or tepid growth having become endemic in the Eurozone.
Every corner of Europe is seeing renewed economic struggles that are fomenting political strife and revolutionary reforms.
In the United Kingdom, a Conservative government that once promised a referendum on EU citizenship is scrambling to convince its own populace to vote to remain in the UK. Foreign leaders, such as U.S. President Barack Obama, and economists, such as MIT’s Nobel-Prize-winner Paul Krugman, are urging Britain to vote to remain in the union, despite its flaws and weak economic growth.
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.
Today, Europe is struggling with a series of old and new challenges. Hard choices can no longer be deferred. For half a decade, Europe has struggled with excessive debt (which remains excessively high), fiscal adjustment (which has failed to revive the continent), systemic banking vulnerabilities (which have not been nullified), and competitiveness challenges (which are worsening due to R&D cuts across the core economies).
The EU leaders’ summit on refugees begins tomorrow. A conclusive agreement will likely be elusive. There are three main obstacles. First, the effort to reinforce the external borders to allow free internal movement requires Turkey’s cooperation, but it will not be represented. Second, that is important because Cyprus is demanding more concessions by Turkey. Third, others such as Spain are concerned that the strategy contravenes EU and international law by abridging the right to asylum.
Christine Lagarde, the outspoken and highly popular head of the International Monetary Fund (IMF), has made a rather bold statement about how to achieve peace in a region known for its many years of turmoil. She has called upon the nations of the Middle East to improve their taxation systems and enact significant fiscal reforms as a way to create political stability and, ultimately, peace.
Lagarde outlined her philosophical pathway to peace in the second speech she has delivered this week in the Middle East.
European markets are reeling as economic data points to worsening conditions despite promises that European economies will receive monetary support. European shares ended last week on a rally after the European Central Bank hinted at more quantitative easing, but many economists warn that the bounce has little to do with fundamental strength in the economy.
It is a common refrain of political strategists that, you should not let a good crisis go to waste. Seven years on from the beginnings of the global financial crisis, we can make an assessment whether one followed that maxim.
The EU is warning that Austria, Italy, and Lithuania are at risk of not achieving their 2016 budget goals. It also warned Spain that is too might miss its target. Nevertheless, the EU said there were no serious violations.
After a terror attack on Paris stunned the world, the European Central Bank has acknowledged political and cultural schisms are rising tensions throughout the European Union.
