Brussels, 22/02/2013 (Agence Europe) - Following on the heels of the bad year of 2012, a new round of stagnation or outright recession looks on the cards in Europe because global growth is lack-lustre and thus restricting export opportunities, and that combined with spending cuts, structural reforms and bank and household debt is causing reduced consumer spending across Europe.
The European Commission is asking member states to keep on with their austerity programmes at any cost but leaving the door open for more time for countries like France and Spain to cut their deficits because they have met their budget targets in structural terms (in other words, ignoring the impact of the crisis). Decisions will be taken in the spring, once the exact figures are known. Likewise for removing the excessive deficit proceedings against six member states.
Euro Commissioner Olli Rehn said on Friday 22 February as he unveiled the European Commission's Winter Economic Forecasts that the current re-balancing of the European economy was having a heavy impact on short-term growth and could be resumed as follows: there are disappointing data about the end of last year, other more encouraging data for the recent past and growing investor confidence about the future. He said that the reform trajectory had to continue to avoid damaging the green shoots and undermining and delaying the return to growth, thus delaying job creation.
The current picture is less optimistic than the European Commission's autumn 2012 Economic Forecasts. Overall, the growth of wealth fell by 0.3% in the EU27 and 0.6% in the eurozone in 2012. In 2013, EU27 GDP is expected to stagnate at 0.1%, but pick up in 2014 to 1.6%, whereas the eurozone is expected to be in recession this year (-0.3%) before picking up to 1.4% in 2014. Inflation is expected to fall to below 2% in the second quarter of 2013 in the eurozone (to 1.8% in 2013 and 1.5% in 2014). Budget consolidation is expected to cut the average public deficit to 3.5% in 2012 and to 2.8% in 2014 in the eurozone and 3.8% in 2013 and 3.4% in 2014 in the EU27. Eurozone debt is forecast to increase to an average of 95.1% in 2013 and then to stabilise (89.9% in the EU27). Unemployment may peak at 11.1% in the EU27 and 12.2% in the eurozone in 2013.
Differences from one country to another. Olli Rehn explained how the Commission will examine under the eurozone's Stability and Growth Pact rules countries' performance in this time of crisis in correcting their budgets. He said that he had repeatedly stressed the importance over the past year of the budget effect in structural terms, saying that if member states have a credible medium-term strategy for public finance in place, along with tangible structural measures, then it would be possible to take account of the impact of the recession and give them extra time to make the changes.
This is an urgent matter for France and Spain, the second and fourth-largest economies in the eurozone respectively. France will be unable to bring its public deficit below the 3% cut-off point in 2013 (the Commission forecasts 3.6%). Rehn said this was largely due to weaker growth prospects (0.1% in 2013 according to the Commission), and praised the country's budget efforts which in structural terms were the equivalent of a 1% of GDP reduction since 2009. He said another year may be granted to enable France to pursue its structural and budget measures, like reform of the pension system and tackling the competitiveness challenge. French economy minister Pierre Moscovici said the criteria for relaxing the deficit reduction trajectory had been met and he welcomed what he described as the European Commission's very smart and balanced approach.
The Commission says Spain will be in recession to the tune of -1.4% of GDP in both 2012 and 2013, but will reduce its deficit from 10.2% of GDP in 2012, taking into account the €40 billion (3.2% GDP) cost of bailing out its banks, to 6.7% in 2013 (the target is 4.5%). Rehn said it was crucial that Madrid maintain the momentum of structural reforms, although it might be given extra breathing space.
Rehn said the Commission might suggest in the spring that the excessive deficit proceedings against six member states be closed (Belgium, Hungary, Italy, Latvia, Lithuania and Poland). He urged the budget surplus countries, Germany and Finland, to do more to boost investment and increase pay in line with productivity to stimulate domestic demand.
Countries in receipt of aid. Greece has seen the uncertainty that had been hovering over its future dissipate through the agreements reached at the end of 2012, said Rehn. It is expected to return to growth at least at the end of the year (with GDP expected to shrink by 6.4% in 2012 and 4.4% in 2013) and slightly more robust growth of 0.6% in 2014. The Commission's winter forecasts for Greece are slightly more rosy than the November ones, which forecast zero growth. Rehn said Greece must keep up the momentum because it now had the solution to its problems in hand. The austerity measures to be introduced by the Greek government over the next two years are the equivalent of 7.2% of GDP, and will not be greeted by joy by people living in the country.
The Commissioner said this was not the time to relax the Greek programme, although recent studies have warned that the recessionary impact of the austerity measures has been underestimated. He said the main reason for the recession in Greece was not the multiplier effect but the ambient political instability and the fact that the planned programme had not had the desired impact. He said he was sure the ECB and IMF shared this view. The terms of the Greek programme have already been eased and Athens now has until 2016 to correct its excessive deficit, which the Commissioner forecast would be reduced to 3.5% in 2014.
The recent agreement with the Irish Central Bank on restructuring Ireland's debt will reduce the country's refinancing needs by some €20 billion over the next decade, said Rehn. The Commission expects a gradual return to growth and encourages Dublin to keep up the good work, and although the figures for 2012 have been raised, growth prospects are expected to remain the same at 1.1% in 2012 and 2.2% in 2014. The public deficit will reach 7.3% of GDP in 2013 (and 4.2% in 2014), a greater than expected achievement. Dublin aims to make a full return to the money markets this year.
In Portugal, economic adjustment has resulted in the economy shrinking more than forecast in the last quarter of 2012, said the Commissioner. After GDP shrinking by 1.9% in 2013, growth is expected to return in 2014 (0.8%). Rehn said it was too early to decide on extra time for meeting the deficit reduction targets, but the picture will be clearer when the outcome of the troika's fact-finding mission next week are published (the troika is the European Commission, the European Central Bank and the IMF).
Growth prospects have slumped for Cyprus. Like the Cypriot government, the Commission is forecasting shrinkage by 3.5% in 2013 and 1.3% in 2014. The Commission is more optimistic than the government about the budget targets, saying the island will bring its deficit down to 4.5% in 2013 and 3.8% in 2014, compared with the government's forecasts of 3.9% in 2013 and 2% in 2014.
Countries outside the eurozone. Growth in the United Kingdom is gradually firming up, said Rehn, but the British debt is expected to reach 100% of GDP in 2014 and the country may not meet its deficit reduction targets (6% in 2014 is forecast rather than the aim of 3%). He recommended that London take extra measures to meet the EU Council of Ministers' recommendations.
Poland is in good financial health. Economic growth is expected to slow down to 1.2% in 2013 from 2% in 2012, but to rise to 2.2% in 2014, well above the EU27 average. Poland's debt is expected to remain below the 60% of GDP mark, but the public deficit is expected to stagnate remain around 3.4% until 2014. (MB and EL/transl.fl)