Monday, January 6, 2014

The Euro Crisis in 2014

Wolfgang Munchau looks ahead to the evolution of the euro crisis in 2014. In his view, the policy debate is over. There will be no debt mutualization and no common backstop for failing banks. All adjustment will be made through austerity and "internal devaluation" (read enforced wage cuts). The European parliament elections in the spring will reveal just how terrible the political backlash against this harsh set of policy choices will be. Euroskeptic parties could capture a third or more of the seats. Worse, their growing influence in many countries is beginning to erode support for the EU in center-right parties. Couple this with the rising xenophobia and racism evident across Europe and likely to be exacerbated by an influx of immigrants from Romania and Bulgaria, no longer restricted from entry into countries to the west, and the potential for all sorts of ugly politics is clear.

Are there any bright spots on the horizon? Economies in several countries seem to be doing somewhat better than in recent years. France, unfortunately, is not one of them.


Siegfried said...

I really appreciate your blog, actually, but honestly : could you tell me, M. Goldhammer, why we should keep Europe in its actual form, which looks like failing and each day loosing approval from public opinions.

I can assure you that I am not a troll, I have an enjoyable life, not frustrated, etc... and I will vote for DLR or FN (but most likely DLR, as it's a proportionnal vote), because I can't stand the loss of sovereignty of my nation, and the ultraliberalism the UE imposes as the 15th century Vatican did for christianity : as an obscurantist way.

I recognize this and I am catholic, so you can trust me I like Europe, but not this way !

FrédéricLN said...

Spain and Italy are now exporting more than importing. Portugal did at first semester 2013 but seemingly not on the whole year 2013. Italy and Greece show a primary budget surplus, as well as Portugal; Spain does not, despite a very strong improvement. Spain exports more than ever; but unemployment in Spain (and Portugal) is also higher than ever. None of these countries changed its currency.

Regarding France, primary surplus is very far away , as well as a balanced trade . Unemployment is high (much lower than in Spain, for sure) and rising. The GDP increases less than population (per capital GDP is decreasing). There may be bright spots on the horizon, but so far, not on the dashboards.

Jurnan Goos said...

A closed budget in France is a rarity in any case. Last time that happened was in the 70's I believe.

The fact that Spain and Portugal cannot change their currencies is part of this tale's irony. Complaining about the bail-outs is a popular thing to do in northern Europe (I myself live in the Netherlands), but no frustration was voiced about the fact that devaluation was no longer an option for those countries when the euro was still going strong.

And your export point, though valid, is not one that makes the outlook any brighter on the whole. Too much export in too many countries right now. Domestic demand needs to go up, especially in countries such as Germany.

But to come back to the (brief) post: Plenty of hopeful signs. Poland is doing well, and the eastern European economies are not all as bad as they are depicted. The influx of eastern European nationals has never been popular in (especially) northern Europe, but that is something that will have to be dealt with one way or another. Britain's influx of Polish immigrations turned out to be mostly scaremongering; the Economist recently wrote on that topic I recall, and it was anything but negative.