Most forecasts now expect the Eurozone to outgrowth the UK economy in both 2017 and 2018—what happens beyond that will be down to what version of Brexit we pursueby Duncan Weldon / June 19, 2017 / Leave a comment
Read much of the British press’s output on the European economy and it won’t be long before you come across words like “sclerotic”, “stagnant” or “moribund.” There is a peculiar type of glee that is found in talking up the Euro’s inevitable demise; doubly peculiar when one considers that a serious crisis in the UK’s largest trading partner would hardly be good news for our own economy.
The alleged catalyst for this seemingly inevitable meltdown has been pinned on different culprits over the past two years: the Greek debt crisis, Italy’s constitutional referendum last year, or anti-Euro right-wing populist victories in the Netherlands or France this spring.
Somehow, though, all these bullets have been dodged. In fact, as the Brexit talks begin, the Eurozone economy looks to be in much better shape than the UK’s.
An awful decade
No serious analyst can fail to acknowledge that the Eurozone economy has suffered an awful decade. Unemployment—and especially youth unemployment—has been unacceptably high. Greece has suffered a depression whilst the other “peripheral” economies of Portugal, Ireland, Spain and Italy went through extremely tough years.
The Euro has always had structural flaws in its very design. Very different economies were bound together with a common currency and common monetary policy, but without the usual offsetting factor of a system of fiscal transfers that could move resources from stronger-performing regions to harder hit ones in a crisis. Perhaps even more seriously, the financial system of the Eurozone was never properly unified—if the Greek banks found themselves in trouble, and unable to lend to businesses, it was always going to be hard for others to step in.
During the global financial crisis, these structural flaws were amplified by clear policy mistakes. Not only was the engine badly designed but the driver made clear errors. Fiscal policy was kept unnecessarily tight as Northern European policymakers focussed on trying to contain public debt rather than support spending. The European Central Bank actually raised interest rates in 2011 at a time when the economy was still struggling—almost unbelievably, in hindsight.
But just as no one should doubt that the last decade has been, at times, disastrous for Europe’s economy, nor should anyone let that blind them to how things…