The future of Europe, between the weakness of Italy and the doubts of UK


The world economic growth has overall slowed down, with significant differences among areas:

The world economic growth has overall slowed down, with significant differences among areas:

– The USA appears the only western country on a real recovery path (2.2% in 2012 and is likely to confirm this figure also for 2013)

– Developing economies are still outpacing and outperforming developed ones (Russia +3.4% in 2012 and the forecast is 3.6% for 2013 – India 4% and the forecast is 5.7% for 2013 – China 7.8% in 2012 and the forecast is 8% for 2013).

–  Europe has the lowest growth and as a whole is losing weight on the global scenario. In the ‘90s the EU was generating 20% of world’s growth; its share is now 5.7%. Nowadays there is not a single European country in the world’s top 10 most growing economies.

The response to the new economic “balance of powers and the completion of the European integration are non-reversible processes. Europe seems to be at an important crossroads, paraphrasing the East’s heading: to go further toward a larger integration or scale back the European project. The sovereign debt crisis turned into a European systemic crisis, with markets’ distrust primarily concerning the sustainability of the Single Currency and of its governance. The main reasons of the current sovereign crisis: high public debts, Eurozone, excessive competitiveness gaps between core and peripheral Euro countries which led to huge current-account unbalances between the Eurozone’s members, interdependence between banking and sovereign crisis. These elements are calling Europe for fiscal discipline, growth (through the promotion of competitiveness-enhancing domestic reforms in the southern European countries) and a European framework both for banking supervision and resolution (beyond a simple coordination at national level) in order to cut the vicious circle between banking and sovereign risks that, among other things, entails higher costs of recapitalization and funding, especially for banks based in the EU peripheral countries like Italy. Instead, the economic crisis is automatically resolving the current-account unbalances given the sharp fall of the aggregate demand in the peripheral countries which reduced significantly the import goods.  

Considering these elements, in real terms,now it is time to act the reforms to make Eurozone a single-global palyer:

In the short term we have to reach the “banking union” and to respect the “fiscal compact”, important signals about the will to proceed forward in the project of European integration through further transfer of sovereignty to the European institutions. But in the medium-long term, we have to achieve political and fiscal union in order to reduce uncertainty and cross-border asymmetries. . The Delors Report of 1989 argued that “in all federa­tions, the way fiscal policies are combined have a power­ful effect in terms of shock absorption, reducing sudden surges in economic hardship or prosperity among indi­vidual states”:

–       On the political side, Eurozone will be under 34 elections in the next 3-4 years, confirming potential stages of adjustment to face.

–       On the fiscal side, Bruxelles authorities manage a balance of €145bn (1% of area GDP) and less than a half is spent in policies for economic development (in federal countries –USA, Brazil, Australia- central governments receive on average more than 50% of total tax revenues). $1 decline in income in Texas triggers 40c of extra federal transfers, a 1 Euro decline in income in Spain triggers less than 1c from Bruxelles.

–        If we compare GDP dispersion between the US states’ GDPs and the Eurozone countries GDPs as a coefficient of variation, we see a remarkable rise of the index of dispersion within Europe, where the index grown by more than 2%, while between US states’ falls by almost 1%.

We have to start thinking as a single-global player, in order to leverage on the potential of our economy, the third most populated area of the world (after China and India).  The former Italian Prime Minister and European Commis­sioner Romano Prodi told the Economist magazine in an interview in 2002 that “the monetary union was like an unfinished build­ing that would be completed when conditions were ripe or a crisis imposed its completion”. The lack of strategic vision among European leaders in recent years suggests the correctness of Prodi’s character­ization. But the worst thing is that also in the current crisis some European leaders and national authorities seem scarcely committed in moving further along the European project, supporting short-sighted national interest. An example is the Deutsche Bundesbank behaviour toward the ECB monetary policy (the German Constitutional Court has been called to decide about the legitimacy, under the German law, of the ECB Outright Monetary Transactions).

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