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The EU begins 2013 with two contradictory facts from the last 12 months. The first is that despite all the gloomy predictions, the euro zone so far has not fallen apart. The crisis, which has been ongoing for three years, has become a kind of normality. Emergency summits are held almost monthly, presenting new initiatives on how to deal with threats such as the collapse of the Greek economy, the problems of unemployment and debt in Spain, or political uncertainty in Italy. All that can be said for these multiple summits over the last 36 months is that they have thus far avoided the worst possible outcome—a breakup of the euro, a collapse of the EU, and the end of one of the greatest multilateral achievements of the modern world.
But against this can be held the second fact. In 2012, as in the three previous years since 2009, growth in most of the EU was flat. Estimated figures released by Eurostat, the statistics agency for the 27 EU member states, predicted a minus 0.3 percent GDP rate in the whole EU for 2012. Within the 27 member states, 11 were forecast to have negative GDP growth, with Greece coming as the worst, with a 6-percent contraction. Other negative growers included Italy, the Netherlands, the UK and Spain. Even the mighty Germany recorded a miniscule 0.4-percent growth rate, Latvia and Poland recorded the strongest growth, with over 4 percent between them. It didn’t matter whether countries were in or out of the euro zone. For both, there was an average negative GDP growth rate of 0.3 percent. 2012 could therefore be called a year of stagnation.
While the EU has managed to avoid catastrophe over the last year, real challenges continue to stand in the way of finding growth. The bottom line is that there is no workable political consensus regarding how to kick-start the world’s largest single economic bloc, even though the crisis first appeared over three years ago.
Stark differences
One issue has become a little clearer in the last 12 months. The fierce arguments about the budget of the EU itself in late 2012 showed how wide the differences were between member states over what the union should do and, most importantly, how it should be funded. The election of French President Francois Hollande in mid-2012 opened up a significant gap between France and Germany. Hollande’s controversial support for more public spending and increased taxation on the wealthy flew in the face of policies in Germany, which supports deeper cuts in public debt and the need to grow through exports. The thorniest issue of all was the position of the UK. Having vetoed a change to the EU treaty in December 2011 to tackle the euro crisis by giving the EU greater fiscal powers, British Prime Minister David Cameron has had to face down constant criticism within his own Conservative Party for being “too soft”on Europe. The demands of the EU for a rise in its central budget therefore could not have come at a worse time. Surprisingly, however, it was not the UK that caused the December 2012 budget talks to collapse, but a division between northern European powers that want tightened control of the money the EU spends on subsidies and regional development, and southern and eastern member states that insist on keeping spending levels where they are.
Some politicians in the UK are blatant about their desire to depart from the EU. Meanwhile, there are undercurrents throughout the rest of Europe that although a breakdown of the union would be a disaster, it cannot continue as it is. The crisis has changed the face of Europe, making Germany much stronger, seeing more growth shift to countries like Poland, and causing the fortunes of Italy and Spain to dip. Faith in the ability of politicians to cure these problems has all but vanished, with cynicism largely thriving where there was once idealism.
This is all part of a bigger international story. In a new study of the future, Global Turning Points by academics Mauro Guillen and Emilio Ontiveros (Cambridge University Press 2012), the authors state that the world is now witnessing a fundamental transition of economic energy and power to emerging countries, and that in the future one single country will never again be dominant but that economic power will be stretched across multiple centers—almost all of them in Asia, Latin America, and, in the longer-term future, in Africa. “Emerging economies,” they state, “are providing the financing for the large current account and government deficits in high-income countries.”
Emerging economies account for two thirds of the world’s foreign exchange reserves, accumulating an extra $2 billion of these reserves every day—half of which are accrued by China alone.
The imbalance between developed, highly indebted countries and developing, high savings countries is very stark. It is hard to see how the larger economies within the EU will find enough sources of growth to move away from austerity economics and get out of their debt problems and current account deficits. The brutal political reality is that public services will continue to be cut and taxes will rise in order for governments to fund their debt levels. Even in the UK, which has made the fiercest attempts to cut back on the public deficit, it has only fallen by a quarter, with the real possibility of a triple-dip recession.
Gloomy prospects
Economists asked by the Financial Times to make predictions about the coming year’s prospects offered answers that were almost uniformly gloomy. A year before, they had argued in some cases for significant growth driven by the United States, China, India and other important economies. But in 2013, the best that most were willing to say was that there would continue to be stagnation in the EU, though again crisis would be avoided and the euro zone would survive.
For the most severely affected economies such as Greece and Ireland, the worst is likely over. Ireland managed to implement its obligations after being bailed out and has returned to modest growth over the last two years, despite a fearsome collapse in its property market, construction sector and employment levels. For Greece, resentment at the conditions imposed for its loans continues, with the real possibility of further unrest in 2013 repeating that of last year. For Italy, the election of a new government in the spring may well see the return of former Prime Minister Silvio Berlusconi, at the age of 76, for mostly negative reasons—the rise in unemployment and the fall of living standards in order to implement austerity policies have created negative public sentiment, despite avoiding economic collapse and the need to go to the EU for a Greek-style bailout.
2013 could be a year of continuing flat growth for the EU, but it is also a year in which decisions will have to be made. The EU budget, postponed from last year, will need to be addressed again, with some kind of agreement as to how the whole multilateral entity will be funded. Politicians in countries like the UK will need to decide what to do about the increasing numbers of people who want to either have a referendum on the EU membership or simply withdraw. EU politicians will have to explain, as never before, the benefits of their organization.
When the leaders of the EU went to collect their Nobel Prize for Peace last December, it was a rare moment of celebration. The prize had been awarded for the ways in which the EU has evolved and grown over the last six decades in managing to create a peaceful environment for countries that had experienced two of the bloodiest wars in history in the first decades of the 20th century. In that sense, while the award was controversial, it was probably fair.
EU leaders and member states that support the union need to defend the ideals on which the organization was originally built at a time when there is increasing doubt and skepticism. It would be a tragedy to see the union falter or even break up at a time when the process of globalization and integration elsewhere is accelerating and deepening. For that reason, whatever else 2013 might be, people throughout the world have to hope that it is a year of decisiveness and resolve in Europe to finally solve its economic issues and start on the path to growth again. This matters to all of us.
But against this can be held the second fact. In 2012, as in the three previous years since 2009, growth in most of the EU was flat. Estimated figures released by Eurostat, the statistics agency for the 27 EU member states, predicted a minus 0.3 percent GDP rate in the whole EU for 2012. Within the 27 member states, 11 were forecast to have negative GDP growth, with Greece coming as the worst, with a 6-percent contraction. Other negative growers included Italy, the Netherlands, the UK and Spain. Even the mighty Germany recorded a miniscule 0.4-percent growth rate, Latvia and Poland recorded the strongest growth, with over 4 percent between them. It didn’t matter whether countries were in or out of the euro zone. For both, there was an average negative GDP growth rate of 0.3 percent. 2012 could therefore be called a year of stagnation.
While the EU has managed to avoid catastrophe over the last year, real challenges continue to stand in the way of finding growth. The bottom line is that there is no workable political consensus regarding how to kick-start the world’s largest single economic bloc, even though the crisis first appeared over three years ago.
Stark differences
One issue has become a little clearer in the last 12 months. The fierce arguments about the budget of the EU itself in late 2012 showed how wide the differences were between member states over what the union should do and, most importantly, how it should be funded. The election of French President Francois Hollande in mid-2012 opened up a significant gap between France and Germany. Hollande’s controversial support for more public spending and increased taxation on the wealthy flew in the face of policies in Germany, which supports deeper cuts in public debt and the need to grow through exports. The thorniest issue of all was the position of the UK. Having vetoed a change to the EU treaty in December 2011 to tackle the euro crisis by giving the EU greater fiscal powers, British Prime Minister David Cameron has had to face down constant criticism within his own Conservative Party for being “too soft”on Europe. The demands of the EU for a rise in its central budget therefore could not have come at a worse time. Surprisingly, however, it was not the UK that caused the December 2012 budget talks to collapse, but a division between northern European powers that want tightened control of the money the EU spends on subsidies and regional development, and southern and eastern member states that insist on keeping spending levels where they are.
Some politicians in the UK are blatant about their desire to depart from the EU. Meanwhile, there are undercurrents throughout the rest of Europe that although a breakdown of the union would be a disaster, it cannot continue as it is. The crisis has changed the face of Europe, making Germany much stronger, seeing more growth shift to countries like Poland, and causing the fortunes of Italy and Spain to dip. Faith in the ability of politicians to cure these problems has all but vanished, with cynicism largely thriving where there was once idealism.
This is all part of a bigger international story. In a new study of the future, Global Turning Points by academics Mauro Guillen and Emilio Ontiveros (Cambridge University Press 2012), the authors state that the world is now witnessing a fundamental transition of economic energy and power to emerging countries, and that in the future one single country will never again be dominant but that economic power will be stretched across multiple centers—almost all of them in Asia, Latin America, and, in the longer-term future, in Africa. “Emerging economies,” they state, “are providing the financing for the large current account and government deficits in high-income countries.”
Emerging economies account for two thirds of the world’s foreign exchange reserves, accumulating an extra $2 billion of these reserves every day—half of which are accrued by China alone.
The imbalance between developed, highly indebted countries and developing, high savings countries is very stark. It is hard to see how the larger economies within the EU will find enough sources of growth to move away from austerity economics and get out of their debt problems and current account deficits. The brutal political reality is that public services will continue to be cut and taxes will rise in order for governments to fund their debt levels. Even in the UK, which has made the fiercest attempts to cut back on the public deficit, it has only fallen by a quarter, with the real possibility of a triple-dip recession.
Gloomy prospects
Economists asked by the Financial Times to make predictions about the coming year’s prospects offered answers that were almost uniformly gloomy. A year before, they had argued in some cases for significant growth driven by the United States, China, India and other important economies. But in 2013, the best that most were willing to say was that there would continue to be stagnation in the EU, though again crisis would be avoided and the euro zone would survive.
For the most severely affected economies such as Greece and Ireland, the worst is likely over. Ireland managed to implement its obligations after being bailed out and has returned to modest growth over the last two years, despite a fearsome collapse in its property market, construction sector and employment levels. For Greece, resentment at the conditions imposed for its loans continues, with the real possibility of further unrest in 2013 repeating that of last year. For Italy, the election of a new government in the spring may well see the return of former Prime Minister Silvio Berlusconi, at the age of 76, for mostly negative reasons—the rise in unemployment and the fall of living standards in order to implement austerity policies have created negative public sentiment, despite avoiding economic collapse and the need to go to the EU for a Greek-style bailout.
2013 could be a year of continuing flat growth for the EU, but it is also a year in which decisions will have to be made. The EU budget, postponed from last year, will need to be addressed again, with some kind of agreement as to how the whole multilateral entity will be funded. Politicians in countries like the UK will need to decide what to do about the increasing numbers of people who want to either have a referendum on the EU membership or simply withdraw. EU politicians will have to explain, as never before, the benefits of their organization.
When the leaders of the EU went to collect their Nobel Prize for Peace last December, it was a rare moment of celebration. The prize had been awarded for the ways in which the EU has evolved and grown over the last six decades in managing to create a peaceful environment for countries that had experienced two of the bloodiest wars in history in the first decades of the 20th century. In that sense, while the award was controversial, it was probably fair.
EU leaders and member states that support the union need to defend the ideals on which the organization was originally built at a time when there is increasing doubt and skepticism. It would be a tragedy to see the union falter or even break up at a time when the process of globalization and integration elsewhere is accelerating and deepening. For that reason, whatever else 2013 might be, people throughout the world have to hope that it is a year of decisiveness and resolve in Europe to finally solve its economic issues and start on the path to growth again. This matters to all of us.