By Andy jalil - Foreign Correspondent — While Britain’s focus is on preparation for Brexit, the Eurozone shows little sign of emerging from its socio-economic plight. The continent’s total inability to solve any of its many existential problems — the endless euro crisis, irregular rates of overall growth, huge level of youth unemployment in the south and no common policy on refugees which has caused conflict within the EU nations — has toxic political ramifications too.
It almost does not matter which political crisis next bothers Europe, there are plenty to choose from. The analytical reality is that one of them will further wound the suffering power in the coming year. The most recent growth figures for the continent make for the usual dismal reading. In the third quarter of this year, Eurozone growth overall was an anaemic 0.3 per cent; in France 0.2 per cent, Italy 0.3 per cent and Germany 0.2 per cent.
Given that in a modern industrial country 0.5 per cent is the lowest end of what is acceptable this pathetic reality can hardly be ignored seeing the extent of the spread. In Spain, after two elections and almost a year of deadlock, a centre-right prime minister was returned to form a minority government.
While the Spanish economy is picking up again from a dangerously low base — it grew at 0.7 per cent in the last quarter — the country must come up with five billion euros in tax increases or further spending cuts if it is to meet its deficit target mandated by the European Commission.
Francois Fillon’s surprise victory — perhaps not all that surprising with Francois Hollande’s low approval rating — suggests French conservatives are gravitating towards traditional values, and not extremism, as their answer to frustrations with the political establishment.
If France keeps to its current lengthy trajectory of almost no growth, this, along with the fears of any further terrorist attacks, could possibly bring the far right National Front leader Marine Le Pen to the presidency the next time round and a call for a referendum on EU membership will probably follow.
In Italy the banks are burdened with some 360 billion euros in non-performing loans. A banking crisis in the Eurozone’s third-largest economy could pose yet another threat to the already-struggling single currency. If the anti-euro Five Star party comes to power at next elections, it would also lead to a referendum with the outcome possibly similar to the UK’s. Even in Germany, the far right AfD is likely to get a fair percentage of votes which may lead to a coalition between Angela Merkel’s CDU and the leftist SPD. It all points to a bumpy year ahead for the EU as it fights for its existence.
Business confidence in Eurozone fell last month, as overall optimism flat-lined amid jitters in Italy over the constitutional referendum. Falling confidence among factory bosses offset more upbeat assessments by retailers, construction managers and consumers, according to the European commission.
Its monthly Economic Sentiment Indicator moved “broadly sideways” to 106.5 last month from 106.4 the previous month. This was below the reading of 107 expected by analysts but well above the long-run average of 100, keeping the reading at its highest since December 2015.
The commission’s business climate indicator edged down as managers took a more pessimistic view of past production and the outlook for export orders deteriorated. It said overall business and consumer confidence was weakest in Italy, where four out of five main indicators, including consumer confidence, saw a fall in sentiment.
Europe’s failure to break its anaemic economic growth cycle is of greater concern for global stability than Britain leaving the EU, the deputy head of the International Monetary Fund has warned. David Lupton, the first managing director of IMF, said that Europe urgently needs to resolve its deep divisions over fiscal and monetary policy.
“I worry more about Europe dealing with its growth challenge, or the legacies of crisis and the need for continued architectural improvements, including completing banking union, which remains incomplete,” Lipton said.
Eurozone inflation reached its highest point in two and a half years last month. The annual rate of inflation rose to 0.6 per cent in the month, driven by continued strength in the price of services, according to an estimate from the European Union’s statistical body.