If Germany, France and Italy cannot find a way to refloat Europe’s economy, the euro may yet be doomed\ JUST a few months ago the euro zone’s leaders believed that, having weathered the storm, they were set fair at last. Buoyed by the promise of Mario Draghi, the president of the European Central Bank, to do “whatever it takes” to support the currency, confidence had seeped back into the continent. Growth seemed to be returning, albeit at a slow pace. Troubled peripheral countries were recovering, after bail-outs and painful measures to cut budget deficits and improve competitiveness. Unemployment, especially among the young, was still desperately high, but at least in most countries it was falling. And bond spreads had narrowed sharply, as financial markets stopped betting that the euro would fall apart. The underlying causes of Europe’s new ills are three very familiar and interrelated problems. First, there is a shortage of political leaders with the courage and conviction to push through structural reforms to improve competitiveness and, eventually, reignite growth: the big countries have wasted the two years bought by Mr Draghi’s “whatever it takes” commitment. Second, public opinion is not convinced of the urgent need for deep and radical changes. And third, despite Mr Draghi’s efforts, the monetary and fiscal framework is too tight, throttling growth—which makes structural reforms harder In theory a new and more cohesive reforming government could make progress, but public opinion is not remotely prepared for that. Mr Hollande is not just deeply unpopular; unlike Italy’s Matteo Renzi, who has bravely made the case for (as yet undelivered) tough reforms, the French president has failed to convince voters that painful change, including a reduction in the size of the state, is inevitable. Instead, Mr Montebourg and his chums offer the beguiling notion that, if only the euro zone scraps its rules and allows bigger budget deficits and generous enough public spending, no more painful reforms will be needed, because the economy will miraculously lift itself out of danger by its own bootstraps. The underlying causes of Europe’s new ills are three very familiar and interrelated problems. First, there is a shortage of political leaders with the courage and conviction to push through structural reforms to improve competitiveness and, eventually, reignite growth: the big countries have wasted the two years bought by Mr Draghi’s “whatever it takes” commitment. Second, public opinion is not convinced of the urgent need for deep and radical changes. And third, despite Mr Draghi’s efforts, the monetary and fiscal framework is too tight, throttling growth—which makes structural reforms harder. Germany’s chancellor, Angela Merkel. She is the leader who insists most firmly on sticking to the euro zone’s rules on fiscal discipline, just as it is the German Bundesbank that is most strongly against quantitative easing.
Posted on: Sat, 30 Aug 2014 19:33:57 +0000
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