At a standstill

“Growth has stalled in Europe, and there is a risk of a new recession”. Olli Rehn, Commission Vice-President for Economic and Monetary Affairs goes straight to the point in the presentation of the autumn forecasts. A few days ago it was confirmed that the EU is still grappling with the crisis. “Growth is at standstill”, Commissioner Rehn pointed out.GDP and unemployment. The recovery of the EU economy has stopped, GDP is far from increasing and no sunny spells are to be seen in the area of employment. “Sharply deteriorated confidence is affecting investment and consumption – state the forecasts, released November 10 in Brussels -, weakening global growth is holding back exports, and urgent fiscal consolidation is weighing on domestic demand”. According to the Executive, GDP in the EU “is now projected to stagnate until well into 2012”. Growth for the whole of 2012 is “forecast at about ½%”. By 2013, “a return to slow growth of about 1½% is expected”. And, regrettably, “no real improvements are projected for labour markets”. Fiscal consolidation is forecast “to progress with public deficits set to decline to just above 3% by 2013 under an assumption of unchanged policies”. Commenting the forecasts, that extend to 2013, Olli Rehn, visibly worried, declared: “While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole”. The key for the resumption of growth and job creation is “restoring confidence in fiscal sustainability and in the financial system and speeding up reforms to enhance Europe’s growth potential”. Thus a message was sent to EU Member States’ governments: “There is a broad consensus on the necessary policy action. What we need now is unwavering implementation. On my part, I will start using the new rules of economic governance from Day one”.The figures of the recession. The Commission in fact had to change its spring forecasts for the worst. The mild optimism displayed a few months ago was unfortunately unfulfilled. Figures show that GDP growth in the euro zone is expected to reach 1.5% in 2011 – 1.6% in EU27. But in 2012 these figures are expected to drop at 0.5 and 0.6% respectively, and to stabilize in 2013. The forecasts highlight growth differences between States. For example, for 2011 Germany registers 2.9% for 2011, while this figure is expected to drop to 0,8% next year; France is expected to fall from 1.6% this year to 0.6% in 2012, while Italy from 0.5% this year to 0.1% next year. Positive trends are registered in Poland (4.0% this year; 1.4% next year) and in other countries such as Austria, Finland and Sweden. GDP growth in Spain is expected to remain at 0.7% in the next two years, while the forecasts for Greece and Portugal are negative. At general level, as regards employment, this year’s EU figures – 10% of all workforce unemployed in 2011 – are reassuring (it is the case of Germany, Austria, The Netherlands, the Czech Republic, Sweden and the United Kingdom), along with more serious situations such as that of France, Portugal, Slovakia, Bulgaria, Hungary and the Baltic states. Spain has the highest unemployment rates in the EU, with 20.9% unemployed in the current year and in 2012. Finally, inflation is expected to fall back below 2% in the course of 2012.Interacting data. In the attempt to interpret the current situation the Commission writes: “Uncertainty has increased since the summer. Concerns about the sovereign-debt crisis in euro-area Member States intensified and broadened, debt sustainability in advanced economies outside the EU also moved into investors’ focus, and the global economy lost steam”. In this framework it is unimaginable that enterprises will make new investments, and “household consumption is expected to restrain”. The forecasts suggest that “banks will tighten credit supply conditions”, thereby further curtailing investment and consumption prospects. The various negative factors are interrelated: “The weakening real economy, fragile public finances and the vulnerable financial sector appear to be mutually affecting each other in a vicious circle. Confidence and growth will only return once this negative interaction is interrupted”. Rehn writes a note that leaves space for hope: “the policy measures decided over the past months are expected to be effective in reducing the uncertainty related to the sovereign-debt and financial-market crisis towards mid-2012, and this will gradually release deferred investment and consumption”, giving new impetus to GDP.