Europe must choose change, or settle into decline
- By Dan Steinbock
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E-mail Shanghai Daily, March 16, 2016
In 2015, the UK, which is part of the EU but not the eurozone, enjoyed 2.2 percent real GDP growth but that's about to weaken as a result of efforts at fiscal consolidation. If the UK remains in the EU, annualized growth is likely to climb to 2 percent and stay there until early 2020s.
In Italy, the rebound is weaker. Quarterly growth hovers at 0.2 percent, along with inflation. Fiscal balance remains negative and public debt at 134 percent of the GDP. After the longest contraction since the Depression, growth will be less than one percent through much of the coming decade.
What's worse, Europe is now coping with a series of new threats — including Britain's potential exit from the EU; the demise of the Schengen agreement which has been compromised by the huge refugee crisis; anti-EU opposition by far-right-wing parties and an anti-austerity left; and increasing geopolitical frictions. Moreover, Brussels must also determine whether it will grant China a market economy status, a decision that is likely to shape EU-China relations for years to come.
Intriguingly, currently Europe benefits from a fragile recovery, ultra-low oil prices and cheaper euro.
In the future, a sustained rebound requires structural reforms driven by political consensus. Oil prices will climb, perhaps even the euro. In other words, things are about to get rougher.
There is a way out of economic stagnation but that would necessitate structural reforms across Europe: a long-term (not medium-term) debt reduction, fiscal accommodation (not austerity), tougher banking oversight and great investment in competitiveness and infrastructure.
Such a way out would also require continental unity rather than fragmentation; a coordinated and long-term migration policy; political moderation rather than extremism; and multipolar cooperation in foreign affairs — not efforts at unipolar regime changes.
In the coming months, Europe must either begin a thorough change or accept its longstanding decline.
Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net
