Andrew McCathie -
European Union voters are heading to the ballot box this month amid warnings of another divisive battle over fiscal austerity, even as it still feels the fallout from the last financial crisis.
Europe’s gross domestic product is showing signs of losing momentum with the region’s flagship economy, Germany, slashing its 2019 growth forecast from 1 per cent to 0.5 per cent amid a recession in its key manufacturing sector.
A recent survey by the Pew Research Centre, a US think-tank, found that 50 per cent of Europeans believe they are worse off than 20 years ago, while only 31 per cent said they were faring better.
Greece, Italy and Spain — the countries at the centre of the euro debt crisis that sent shockwaves across global economy nearly a decade ago — were the most pessimistic with the financial meltdown still helping to shape economic and political life in the nations.
With the EU projecting a slowdown in GDP growth to 1.5 per cent this year, Brussels could find itself once again on a collision course with some member states over ensuring they adhere to Europe’s tough budget rules. “Fiscal austerity was successful at the start of the crisis because it helped to restore confidence,” ING Bank economist Carsten Brzeski said.
But he said despite the pressure from some of their northern EU partners, southern European states — led by Italy — are likely to be highly reluctant to pursue new tough fiscal measures in the face of a slackening EU economy and its impact on jobs.
“It will be a bigger test than in the last 10 years,” said Brzeski, raising new risks for the euro, which has emerged as a symbol of Europe’s drive for greater integration. Indeed, the threat of fresh clashes over fiscal austerity could add to the already fraught atmosphere surrounding the EU elections resulting from Britain’s Brexit crisis, US trade tensions, long job queues combined with the rise of populist political movements.
The question is how the EU might seek to push its budget rules with opinion polls pointing to anti-European parties picking up support in the EU elections.
At 6.4 per cent, EU unemployment might be at a near 20-year low, but more than 16 million people are still without work across the region. In addition, the chief architect of region’s hardline stance on fiscal austerity, German Chancellor Angela Merkel, is stepping back from the political limelight after announcing plans to retire by 2021.
“The unknown is what will be Germany’s stance (on fiscal rules) without Merkel,” said Claus Vistesen, eurozone economist with the research group Pantheon Macro.
Economists see Italy as a particularly difficult case. For years, Rome’s high public debt, economic stagnation, political instability and poor reform record made it a source of major concern.
As its economy slumped further, it stoked anti-establishment sentiment, paving the way for last year’s formation of a populist, eurosceptic government.
The new far-right League and anti-establishment Five Star Movement coalition government in Rome quickly set about defying EU fiscal rules by boosting spending on welfare and pensions. The result was a battle with Brussels over its budget plans.
“Italy is a case in point that countries do need to reform their economies for the 21st century,” said economist Christian Odendahl from the British-based think-tank, Centre for European Reform. “And it’s also a case where the EU’s tools are limited.” The EU elections from May 23 are in any case unlikely to make a big direct impact on the economic situation in individual member states.
Populist parties are not likely to be a substantially stronger force in the European Parliament after the polls, in large part due to their many differences, Brzeski argued in a note to clients.
They have not been able to tap into economic resentment as much as they have done into concerns over migration, he said. — dpa
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