Eurozone Bounces Back
as Growth Beats US, Britain – But Is It Sustainable?
May 19, 2017 2:55 AM
Some of the economies that suffered most in the 2008 debt crisis are
bouncing back strongest — the so-called PIGS. Portugal hit a 10-year
high with 2.8 percent year-on-year growth. Spain’s economy is forecast
to grow 2.7 percent in 2017, and passed a crucial milestone last month
as its GDP exceeded pre-2008 crisis levels.
“We’re seeing a cyclical recovery because we finally had the European
Central Bank operating like a normal central bank and doing quantitative
easing,” says analyst John Springford of the Center for European Reform.
With inflation in the eurozone hitting the central bank’s target of 1.9
percent, many economists expect the quantitative easing program to keep
interest rates low to be wound down later this year. There are fears,
however, that turning off the money could hurt the eurozone’s poorest
Italy’s economy is still in the slow lane with annualized growth of just
“It’s growing very slowly, its banks still haven’t been sorted out and
there’s a lot of political instability,” says Springford.
Meanwhile, Greece is back in recession and the familiar public sector
strikes have paralyzed transport systems this week. Police joined the
protesters over proposed cuts to in-work benefits and pensions. The
government plans further cuts in return for the next tranche of EU
bailout money. A decision by EU finance ministers is due Monday.
Economist Codogno says the structural problems underpinning the eurozone
have not gone away.
“The eurozone cannot survive without additional major reforms, which
means more integration, in terms of fiscal and eventually even
the bounce-back is Brexit. Britain’s decision to leave the EU is
weighing on its economy as growth slows and wages fall, says Springford.
“The pain is going to be largely borne on the UK side because it’s a
smaller economy. The big question is whether the EU and the UK can
negotiate a deal which minimizes the economic costs. And we’ve had a
very bad start to negotiations with a lot of bad blood.”
Europe’s politicians hope economic growth can help stop the march of
anti-EU populism that saw Britain vote to leave the bloc.
The election of pro-EU centrist Emmanuel Macron as French president has
reinvigorated the French-German axis that has long been the eurozone’s
driving force. Macron’s political honeymoon could be short, with French
unions already voicing objections to his proposed reforms.