Will 2016 be a year of economic reckoning for the EU? - Europe’s economy faces a lot of wild cards in 2016. Among them, how much will terrorism and
ADVERTISEMENTWill 2016 be a year of economic reckoning for the EU?
- Europe’s economy faces a lot of wild cards in 2016. Among them, how much will terrorism and the fear of it scare away shoppers, tourists and culture fans?
- Will the migrants streaming into Europe be a boost to the economy or a drag on it? Some countries like Germany need the extra labour force as theirs shrink.
- More bailouts ahead for Greece and other Eurozone countries still struggling from the crisis? What could the ECB do if US interest rates rise to prevent inflation there?
- Fuel prices could shoot up amid MidEast tensions and as Ukraine simmers. And China is slowing down. All factors that could impact Europe’s economy in 2016.
Wired into this edition of the Network at the European parliament here in Brussels are;
Roberto Gualtieri, Italian Socialist MEP, Chair of the Committee on Economic and Monetary Affairs,
Esther de Lange, Dutch Conservative MEP and vice-chair of the European parliament, also on the Economic and Monetary Affairs committee,
Guntram Wolff, Director of the Bruegel think Tank based in Brussels.
Analysts are expecting EU growth to be 1.5% this year with exports bolstered by the weaker euro, but doesn’t that make the EU more vulnerable?
Roberto Gualtieri:
“Clearly the EU economy cannot only be based on an export drive. We have to build stronger capacity to boost our demand and investment. We need both supply side and demand side policies, and investment is the link between supply and demand. We need more investment.”
euronews:
“OK. So is growth 1.5% or 2% like the European commission says in its latest report?”
Esther de Lange:
“We can fight over the half-percentage points, but the issue is do we have our own house in order? And yes, the investment gap, if I look at the US compared to Europe, that is an issue. I always add from the side of the EPP that if this investment means public borrowing, then building up debt is not the way we would want to go. We need responsible governments as well. Investment needs to be growth enhancing, it needs to be private, and that’s what we need to stimulate the economy.”
euronews:
“Let’s add into the mix the Juncker plan for investment, 315 billion euros he hopes will stimulate things. Do you think that will lift the EU economy?”
Guntram Wolff:
“I think the Juncker plan has a pretty marginal effect on the recovery and on investment. I mean what is really needed is of course stability outside and China is the big worry here and of course internal supply side and demand side measures, and I think actually that demand side measures are quite important and the public sector has to play a role there.”
euronews:
“Let’s talk about another wild card, the terrorist attacks which seemed to scare a lot of people away from shopping, from going to concerts, tourists even. How much of an impact do you see there? Should we be worried about that?”
Roberto Gualtieri:
“Of course it’s worrying, it has an impact, and it means that Europe has to run a serious foreign policy on its borders. I do not think that a continent that wants to play a role in geopolitical affairs can do that with a surplus. You need to devote resources and also political capacity to be united. History tells us that.”
Esther de Lange:
“I don’t think there’s a big divide here between the big political parties. What we demand from the member states of the EU is unity in this regard. If I sum up the feeling at the beginning of 2016, it’s insecurity, and not only in economic terms if you look at the migrant crisis. We need to fix this together and what we see now is division.”
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“Do you think that terrorism is going to hurt the economy?”
Guntram Wolff:
“Well look, I think the experience of past terrorism attacks is that terrorism typically has a very short-lived direct effect. then there is the more costly affair which is the public response, which is usually wars. This is the most expensive issue and of course that would be the big bill if Europe decided to really enter a war it would be really expensive.”
euronews:
“Yet another wild card is oil prices. They’re very low right now, but could come back up if tensions increase in the middle east, if conflicts break out. How should the EU be dealing with this wild card, Roberto?”
Roberto Gualtieri:
“Actually the current tensions in the middle east, for example between Saudi Arabia and Iran, are among factors keeping the price low. This is not necessarily a negative thing, for the consumer it’s a positive. It provides an additional income effect, but of course it contributes in keeping general price levels down, and that requires that the ECB maintains its quantitative easing programme.”
euronews:
“Has the EU prepared for another spike in oil prices?”
ADVERTISEMENTEsther de Lange:
“Well what is important is to get our own house in order. I’m happy Roberto and his group stressed the need for structural reforms because this QE policy of the ECB’s, it can only be the oil that makes the machine go smoother but we really need to make sure that this machine is structurally sound. If we don’t reform now with these oil prices being low, then when?”
euronews:
“Well, that’s a good point. How much faith do you have in these policymakers pulling off tougher reform?”
Guntram Wolff:
“To be honest the experience is not very good in the last couple of years, we’ve had a lot of things ongoing but many things are unsettled.
Let’s start with the banking system. We continue to have problems popping up in the banking system. QE is working but it’s certainly not enough. So on the structural side yes, we do see reforms in some countries but in others we don’t so I think that overall on the policy side we are only half delivering.”
euronews:
“OK, on reforms we have yet to see if Greece is going to be able to pull off all the reforms it’s required to to get the bailout it needs, and there could be another bailout up ahead. Roberto, what do you think?”
Roberto Gualtieri:
“I want to say I’m happy Esther is happy when I say we need structural reforms. I would be happy if Esther recognised we need investment, also demand side policies. I would be really, really happy.
ADVERTISEMENTI don’t think we need another bailout in Greece. I think the plan will work and we avoided a major crisis. This was a good thing for Europe.”
euronews:
“Guntram, do think there’ll be another bailout for Greece?”
Guntram Wolff:
“Well I think the Greek problem is not solved. That’s very clear. The programme relies too much on austerity, we want too much austerity in Greece, I mean it’s totally unthinkable to get a 3.5% primary surplus in Greece so there will have to be an adjustment and that will probably mean some debt forgiveness in some form or another. That will have to come I think this year”
euronews:
“Esther, could there be other countries in danger of getting a bailout?”
Esther de Lange:
“Well, experience has shown that countries might always be in danger and we need be awake. What I’m worried about is that when the crisis hit we were all awake and we were all working very hard to prevent the next crisis from happening but you can see that for some attention is going away, and we might be taking things too easily. Greece really went this close to the abyss, and we should realise that and make sure that we keep permanent attention not only on Greece but also some other member states in the EU as well.”
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“Some would say the migrant crisis will turn out to be a boon to the economy and others say it’s going to be a drag, at the beginning anyway, because of the additional social costs, and training them to be able to work. Roberto, how do you see this?”
Roberto Gualtieri:
“In the long term I think it’s a positive effect for sure, taking account of our demographic balance, but of course we cannot deal with this as a purely economic element, the human factor is important, there are political and social factors and consequences, so this requires an enhanced capacity for integration, for having common migration policies and border controls, so this requires more Europe, and of course this requires more growth.”
euronews:
“Exactly. Esther, what impact do you see? Could this be a drag? We see the German economy, or at least the German government tested by this issue and there could be an effect on their economy.”
Esther de Lange:
“What we need right now is a European common answer to this challenge. Some member states might need some kind of influx of workers but this might not be the people who are coming now. The people coming now are fleeing war and what we need to do is to make sure that we can shift, very quickly, those in need of protection, which is our obligation to do, and those who cannot stay.
We are failing in making that shift quickly and we need to get that in order.”
euronews:
“Do you think Europe is going to be able to handle this migrant crisis economically this year?”
ADVERTISEMENTGuntram Wolff:
“Economically the costs are not very high in the short term, for public finance costs it gives a short term boost because you spend more. In the long term it certainly can have positive effects if the migrants really get integrated, but you know I’m much more worried that, of course, we need a European answer to this, but I don’t think we’re really getting it, so I’m quite afraid that border controls will become much more important, much more salient this year.”
