Sunday

11th Apr 2021

Magazine

2015: It's the economy, still

  • Eleven of the 28 member states have double-figure unemployment, topped off by Spain and Greece where a quarter of the workforce is without a job. (Photo: Dennis Jarvis)

The EU spent most of 2014 in a state of suspended action. There was the seemingly interminable run-up to the May EU elections - in which the EU commission all but stopped working. And then the equally drawn-out post-election phase as it went through its changing of the guard.

The process was finally completed in November. There are new faces in the European Parliament. A new team in the European Commission. A new chief in the European Council.

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  • Pablo Iglesias (36) leads the Spanish anti-establishment movement Podemos (meaning 'We can'). It was founded by political scientists in early 2014, won its first EP seats in May and topped the polls by the end of the year. (Photo: Jairo Vargas)

Now that the power reshuffle is over, the focus in 2015 will be on making good on those numerous promises to boost the EU economy and reduce unemployment.

The starting point is grim. The EU is projected to to grow by just 1.5 percent; the eurozone by 1.1 percent.

Eleven of the 28 member states will have double-figure unemployment, topped off by Spain and Greece where a quarter of the workforce is without a job.

Deflation remains a persistent concern - the inflation rate in November 2014 dipped to 0.3 percent, far below the 2 percent target aimed at by the European Central Bank (ECB).

And the sluggish growth continues despite the eurozone bank throwing the toolkit at the problem, including charging banks for depositing money with it and launching a programme to monetise assets held by national lenders - actions meant to spur them to lend money to the real economy.

ECB chief Mario Draghi has hinted several times at quantitative easing - large scale buying of government bonds. But this is strongly opposed by Germany which fears the mutualisation of debt.

Nevertheless, Germany's own economy is also suffering, its exports have been hit by weak eurozone demand, a slowdown in China, and the crisis in Ukraine. In early December, KfW Research, an economic research centre, slashed its 2015 growth forecast for the EU's biggest economy from 1.5 percent to 0.8 percent.

The European Commission predicts a scarcely better 1.1 percent. The outlook for France and Italy, the second and third largest eurozone economies, is equally grisly (0.7% and 0.6%, respectively).

Meanwhile, a potentially very messy fight is brewing over Italy and - especially - France's budget plans.

In late November the commission chose not to punish either capital for breaching the rules underpinning the euro (Paris for its budget deficit, Italy for its public debt).

It has set a spring deadline by which France and Italy must deliver on promises to make wide-ranging reforms. France is seen as the greater problem, having twice been given leeway on its budget deficit.

Germany is pushing behind the scenes to make sure Paris doesn't escape punishment if nothing has changed by March. However, the politics of punishing a struggling economy with, ultimately, a fine is difficult.

The Juncker plan

The economic situation, particularly in southern Europe, has led mainstream politicians to fear that people, if they don't already, will start to blame the EU for their woes.

With the ECB's hands effectively tied by Germany, the EU is now pinning its hopes on a €315 billion investment plan, unveiled a few weeks after the commission came to office.

It is meant to start putting right many factors contributing to the continued economic troubles, including the fact investors aren't taking risks, particularly in periphery states (overall, investments in the EU have dropped by 20 percent since a peak 2007).

But there are already serious questions about whether the fund will deliver.

Instead of the fiscal stimulus apparently promised when it was first mooted, the fund eventually ended up with no new money - just a guarantee of €16 billion from the EU budget and €5 billion from the European Investment Bank (EIB). A big promise of leverage: €1 is to deliver €15.

It shares many similarities with the largely unsuccessful "Growth Pact" announced in 2012. And relies on the EIB - mindful of its triple-A rating - shedding its cautious nature to back riskier but potentially higher-return projects.

While economic woes will continue to dominate in 2015, the EU's uncertain political landscape will also form an important backdrop.

Greece could return to the spotlight if it holds snap elections in early 2015. Far-left party Syriza, polling top in late autumn, is pushing for an early vote.

The party's sharp rise in popularity in recent years already had repercussions on Athens' talks with the country's international lenders in November. The governing New Democracy, anxious to stave off a poll, fell out with its creditors by refusing their demands for higher taxes and income cuts in the 2015 budget.

Syriza, for its part, remains an unpredictable entity for both Greeks (who aren't sure what its economic programme will mean in practice) and for the country's lenders. The party has said it will rip up the bailout programme and its austerity measures.

Another country witnessing the meteroic rise of a far-left party is Spain, which is due to hold general elections by the end of 2015. Podemos (meaning "We can") was founded by political scientists in early 2014, won its first EP seats a few months later and was topping the polls by the end of the year.

A victory would inject political uncertainty into Spain's traditional party system, dominated for the past four decades by the centre-right and centre-left. Podemos' manifesto includes lowering the retirement age to 60 and a 35-hour working week.

Forming the larger backdrop to EU politics, public opinion remains unfriendly to Brussels.

Perception problem

The latest survey showed that around quarter of citizens have a "very negative" view of the EU while 52 percent feel that their voice doesn't count.

Such views are not helped by the fact that politicians have still not worked out how to fix the democracy gap that emerged by having the European Commission decide on member states' spending priorities - essentially taking away the bread-and-butter power of national parliaments.

With Brussels perceived as laying down the law on national pension reforms or spending on health and education - powers it acquired in the financial crisis - the potential for resentment is high.

Just before he took up his post, European Commission president Jean-Claude Juncker, said his would be a "last chance" commission that needs to "win back the citizens of Europe ... or fail".

The coming year is not the "last chance" year, but it is time for the EU to start delivering some good news.

This story was originally published in EUobserver's 2014 Europe in Review Magazine.

Click here to read previous editions of Europe in Review magazines.

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