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Economics no image

Published on April 11th, 2012 | by Katharina Obermeier
Image © [caption id="" align="alignnone" width="565" caption="Outside the Frankfurt Stock Exchange © Metro Centric"][/caption]   As with any story, good news on the eurozone crisis receives much less media attention than bad news. This is not least because good economic news tends to be, by its very nature, less attractive as a story, since it usually describes a gradual process rather than a one-time shock, and therefore doesn’t exactly qualify as “breaking news”. Bad economic news, in the form of defaults, plummeting stocks, and credit crunches, makes for much more dramatic and gripping coverage. So it is not surprising that there has not been widespread media coverage of the latest predictions concerning the eurozone, from the national statistics offices of France, Germany and Italy, which jointly forecast that the recession will be over by the summer. And yet, this is very important news, considering the fact that in February, the European Commission foresaw the recession lasting into 2013, and the general mood among many people that this crisis will be never-ending. But is it really good news? Economic predictions, even when made by qualified economists, are after all just that – predictions. There have been many conflicting ones made over the last year, and in times of financial uncertainty they are particularly difficult to get right. Standard & Poor’s, the US based financial research company,  last week issued its own, more pessimistic forecast for the eurozone, which sees the recession lasting until late 2012, demonstrating uncertainty among the economists (though it is important to note that these figures are also more optimistic than earlier ones, suggesting at least an upward trend). Even if the predictions turn out to be accurate, the economy of the eurozone would grow by only 0.1 percent in the summer  – unlikely to have a noticeable positive impact. Furthermore, the estimate concerns the eurozone as a whole, meaning the economies of individual countries like Spain and Greece are likely to continue to contract or stagnate. In any case, economic recovery will probably not significantly reduce unemployment, the key issue for the average citizen of the eurozone, anytime soon, as this is a much longer-term process than, for example, increasing exports. These important caveats aside, economic recovery in the eurozone is definitely something to celebrate and look forward to. However, if and when it occurs, there is the distinct danger that eurozone leaders will become complacent, and that the discussions on deeper fiscal and political integration in the EU will lose any sense of urgency that has pervaded them until now. In economically stable times, it is far easier for national leaders – especially of the wealthier member states – to concentrate on purely domestic issues than attempt to forge a difficult consensus among 27 (or 17 for the eurozone) actors representing disparate interests. But failing to address the eurozone’s outstanding issues just because the crisis has been overcome would be a fatal error, one that would harm the area’s long-term economic opportunities and invite a new financial crisis in another decade or so. The talks on greater financial regulation, developing project bonds to mutualise national debt to a certain extent, and the enhanced capacity of the European Stability Mechanism are all crucial to making the EU less vulnerable to financial crises in the future and better-equipped to deal with them if they occur. The eurozone crisis pushed European leaders towards greater fiscal responsibility and integration, and this momentum should not be abandoned when financial stability and economic growth return. Otherwise, the eurozone is just preparing itself for more bad economic news in the future.

1

Anticipating the EU’s Economic Recovery

Outside the Frankfurt Stock Exchange © Metro Centric

 

As with any story, good news on the eurozone crisis receives much less media attention than bad news. This is not least because good economic news tends to be, by its very nature, less attractive as a story, since it usually describes a gradual process rather than a one-time shock, and therefore doesn’t exactly qualify as “breaking news”. Bad economic news, in the form of defaults, plummeting stocks, and credit crunches, makes for much more dramatic and gripping coverage.

So it is not surprising that there has not been widespread media coverage of the latest predictions concerning the eurozone, from the national statistics offices of France, Germany and Italy, which jointly forecast that the recession will be over by the summer. And yet, this is very important news, considering the fact that in February, the European Commission foresaw the recession lasting into 2013, and the general mood among many people that this crisis will be never-ending.

But is it really good news? Economic predictions, even when made by qualified economists, are after all just that – predictions. There have been many conflicting ones made over the last year, and in times of financial uncertainty they are particularly difficult to get right. Standard & Poor’s, the US based financial research company,  last week issued its own, more pessimistic forecast for the eurozone, which sees the recession lasting until late 2012, demonstrating uncertainty among the economists (though it is important to note that these figures are also more optimistic than earlier ones, suggesting at least an upward trend). Even if the predictions turn out to be accurate, the economy of the eurozone would grow by only 0.1 percent in the summer  – unlikely to have a noticeable positive impact. Furthermore, the estimate concerns the eurozone as a whole, meaning the economies of individual countries like Spain and Greece are likely to continue to contract or stagnate. In any case, economic recovery will probably not significantly reduce unemployment, the key issue for the average citizen of the eurozone, anytime soon, as this is a much longer-term process than, for example, increasing exports.

These important caveats aside, economic recovery in the eurozone is definitely something to celebrate and look forward to. However, if and when it occurs, there is the distinct danger that eurozone leaders will become complacent, and that the discussions on deeper fiscal and political integration in the EU will lose any sense of urgency that has pervaded them until now. In economically stable times, it is far easier for national leaders – especially of the wealthier member states – to concentrate on purely domestic issues than attempt to forge a difficult consensus among 27 (or 17 for the eurozone) actors representing disparate interests. But failing to address the eurozone’s outstanding issues just because the crisis has been overcome would be a fatal error, one that would harm the area’s long-term economic opportunities and invite a new financial crisis in another decade or so. The talks on greater financial regulation, developing project bonds to mutualise national debt to a certain extent, and the enhanced capacity of the European Stability Mechanism are all crucial to making the EU less vulnerable to financial crises in the future and better-equipped to deal with them if they occur. The eurozone crisis pushed European leaders towards greater fiscal responsibility and integration, and this momentum should not be abandoned when financial stability and economic growth return. Otherwise, the eurozone is just preparing itself for more bad economic news in the future.

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About the Author

Katharina Obermeier

Katharina considers herself a German-Canadian hybrid. She grew up in Germany and completed her BA in International Relations at the University of British Columbia in Vancouver, Canada. Politics, especially in relation to concepts of nationality, have always fascinated her, and she is particularly interested in international political economy. During her studies, she was an avid participant at Model United Nations conferences, and helped welcome international exchange students to her university. She is currently completing an internship at a Brussels-based trade association and hopes to work in European affairs in the future. In her political writing, Katharina marries social democratic principles with a keen interest in the European Union and its implications for European politics and identity. She writes to counteract simplistic ideas about politics and economics, continuously attempting to expose the nuances and complexities involved in these subjects.



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