Conference Presentation, Panel, Fireside Chat
Plotting a Course for Post-Crisis Europe
Milken InstitutePaul Coulson, Karl-Theodor zu Guttenberg, Erik Nielsen, Keith Savard, Josef Stadler, Anatole Kaletsky
- Europe is forecasted to remain the "weak link" in global recovery for the "next five, ten years" unless it emerges from its current stagnation, with many countries expected to see the situation "still getting worse" in the near future compared to U.S. improvements.
- The Italian government is viewed as unstable, with predictions of a successor within "half a year" to "a year," potential new elections within "a year's time," and structural reforms from the previous administration delivering only "0.4% additional growth per year after about two years."
- Significant economic constraints include a "credit crunch" in mid-sized industries, financing costs in Italy and Spain running "300 basis points higher" than in Germany, and a warning that failure to decouple gas prices from oil could result in massive job losses.
- Labor and fiscal reforms in France face significant execution delays and strikes, with current government actions described as "miserably missing" regarding tax changes and an expectation of continued stagnation if urgent labor law reforms are not implemented.
- While the risk of a systemic financial crisis similar to "Lehman" is considered largely removed by ECB and German actions, there are concerns that "austerity fatigue" is setting in Ireland and that the German public mood has shifted to fatalism without increasing support for debt mutualization.
- Future institutional developments are predicted to include a "banking union" and the creation of "new, much stronger institutions within the Eurozone" over the "next two or three years," potentially leading to a "two track Europe" where the UK and others remain in a separate layer.
- Monetary policy expectations involve the ECB and Germany pursuing "continuous massive quantitative easing" to boost stock prices, with a forecast that Europe will "copy-paste" U.S. and Japanese quantitative easing solutions "within the next 18 months."
- The Euro is projected to survive due to the "self-interest of everybody" and economic size, with business and government concerns focused on unemployment rates above 25%, though the currency faces threats if energy costs and structural deficiencies are not addressed.
- Over a three-to-five-year horizon, Europe is expected to potentially build the first institutions exclusive to the Eurozone, though some forecasts suggest it may only see "muddling through" rather than significant structural change if current political hurdles persist.
- Despite concerns about long-term stagnation and a lack of bold ideas regarding deleveraging, the region is noted to be currently "more competitive than America" based on current account surpluses and retains its importance to global business via a "$1.5 trillion annual trade flow" with the U.S.