Consulting

Europe Needs to Combine Solid Fiscal Policy with Structural Reform

2012 will not go down as a growth year in the annals of the EU. In its autumn assessment presented on 7 November 2012, the EU Commission actually predicted a reduction in GDP by 0.3 percent for the EU economy in the current year. The EU Commission expects slight economic growth again in 2013. On the other hand, the assessment predicts that unemployment will remain at a high level.

The GDP in the EU is expected to grow by 0.4 percent overall in 2013, with a 0.1 percent increase in the Eurozone. These minimal growth rates are then expected to solidify in 2014 according to the assessment, increasing to 1.6 percentage points across the EU. However, these figures require a differentiated examination since there are significant economic differences between the member states.

Material differences will remain between the countries in the foreseeable future, especially in terms of unemployment. The assessment predicts a high for 2013 at twelve percent in the Eurozone and eleven percent for the EU as a whole. On a positive note, the report states that the drop in competitiveness by some states is gradually being caught up. That means these countries could also benefit from the expected recovery of world trade.

Economic Commissioner and EU Commission Vice President Olli Rehn explains: "Europe is going through a difficult phase of eliminating macroeconomic imbalances and this will take some time yet. Our projections indicate that the prospects for growth in Europe will gradually brighten at the beginning of next year." Rehn concludes: "Europe has to continue combining solid fiscal policy with structural reforms in the future in order to establish the prerequisites for sustainable growth, making it possible to reduce unemployment from the currently intolerable level."

The report confirms that the member states are on the right track in terms of fiscal policy. Public budget deficits are expected to decrease to 3.2 percent of the GDP for the EU and 2.6 percent of the GDP for the Eurozone in 2013. Furthermore, the overall government debt level can generally be expected to stabilise at 95 percent of the GDP for the Eurozone and 89 percent of the GDP for the EU. The report sounds the all-clear for inflation, at least in 2013. It is expected to drop below two percent.

 

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