Sonntag, 19.08.2018 02:11 Uhr

Eurozone real GDP growth forecast and the recent past

Verantwortlicher Autor: Carlo Marino Rome, 22.09.2017, 09:19 Uhr
Fachartikel: +++ Wirtschaft und Finanzen +++ Bericht 6213x gelesen

Rome [ENA] According to ANSA, Italian Press Agency, the European Central Bank on Thursday revised its eurozone real GDP growth forecast for 2017 up to 2.2% from 1.9% and credited the contributed of migrants and women for boosting the labour force. "Immigration has made a large positive contribution to the working age population during the recovery, reflecting primarily the inflow of workers from new EU Member States,"

the ECB revealed in its economic bulletin. "This is likely to also have had a significant impact on the labour force, particularly in Germany and Italy, but also in some smaller euro area economies...” "Continuing a long-term trend, the increase in the labour force during the economic recovery has been driven by the participation of women. "While the increasing share of the older age groups is characteristic of both genders, for women, growth in the participation rate over the course of the recovery has been larger and the decline in the prime-age labour force has been smaller".

Starting from this statement, the next 12-18 months are an exceptional chance for European reform. Brexit is a complex negotiation but no longer a systemic risk for the EU27 countries that will remain in the union when the UK leaves. The two largest countries of the EU27, France and Germany, will enter this period with fresh government mandates after the 2017 election cycle. For them and several other member states, the significant political deadline is the European Parliament elections of 2019, which may focus public debates on the EU policy agenda.

The transformation of the EU economic and financial policy framework in the wake of the last decade of crisis has been extremely intricate. The euro area’s challenge of monetary and economic union of politically sovereign countries is historically unparalleled. Its initial design was incomplete. Its early development can be regarded as something of a collective discovery process. No expert completely estimated the way the weaknesses of Economic and Monetary Union would play the game under pressure.

The key intuition gained during the most disruptive phase of the euro-area crisis, mainly after its speeding up in the summer of 2011, was the comprehension of the direct and indirect financial linkages between national governments and national banking systems, also known as the bank-sovereign vicious circle. In the first few years of the financial crisis that started in mid-2007, there was near-universal rejection in euro-area countries of the largely home-produced nature of the problems met. National banking supervisors had contradictory incentives to neglect the upsurge of risk in domestic banks, as they tended to promote and defend these same banks as ‘national champions’ on the increasingly open European competitive playground.

The appearance of sovereign credit risk in the euro area was not immediately associated in the European public policy debate with banking sector fragility, because the country in which that risk manifested itself first and most strongly, Greece, was an eccentric in terms of its domestic banks not appearing to have taken excessive risks of their own. From an analytical standpoint, the bank-sovereign vicious circle look as if identified initially in 2008-09 by International Monetary Fund (IMF) staff economists. In the period that followed, the IMF was sidetracked from this stream of analysis by the intensity of the Greek crisis, but other analysts and scholars made similar observations.

With the raising of systemic concerns in Spain, Italy and France during the course of 2011, the bank-sovereign vicious circle became an increasingly evident and widespread framework for analyzing the crisis. By early 2012, it had become a mainstream reference included in public policy pronouncements. The European Union’s inability to stem the contagion through the bank-sovereign vicious circle in turn exposed its lack of effective executive decision-making capacity. This EU ‘executive deficit’ itself formed a vicious circle with its more familiar democratic deficit. Not only did, the EU institutions’ lack of authority prevent them from solving the crisis, but their incapacity to do so also fed the European public’s distrust of them.

The crisis was a test of the political commitment of individual member states and their citizens to the overall European integration project. This allowed political leaders to proclaim that the past practice of national bank rescues using taxpayers’ money had to be substituted in the future by pure market discipline implicating the financial participation (or ‘bail-in’) of failing banks’ creditors and other claimants. And that without having to create a momentous safety net at the European level. In the intervening time, the Spanish situation was addressed by an assistance programme that was finalised on 20 July 2012, and involved the ESM lending to the Spanish government so it could recapitalize Spanish banks to the extent needed.

The respective and separate areas of financial services policy, fiscal policy, structural economic policies and political institutions together cover most of the ground on which further reform can make EMU more resilient. Because they are moderately interdependent, progress in one area can feed progress in others. This political context coincides with the end of the decade-long phase of widespread banking system fragility, as suggested in the previous section. The euro area’s present economic recovery is likely to remain vigorous for some time. Memories of the crisis are still fresh. A less than benign geopolitical environment might also stimulate the European Union to put its house in order.

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