Panel
Repairing Finance and Restoring Growth in Europe
Milken InstituteHoward Schneidermann, Christine Van Den Buckel, Christian Hangenmeier, Keith Savard, Michael Tenenbaum
- Short-term uncertainty regarding international investment in the Eurozone is expected to persist due to events in Ukraine, with a probability exceeding 50% that the situation escalates into a full-blown civil war and a high likelihood of developing into a West-Russia proxy war that could trigger a sanction war for the European economy.
- European economic stagnation is projected to continue unless banking difficulties for SMEs are resolved, while France faces a government change expected in a couple of years that could improve its economy, whereas Germany risks becoming mediocre within 10 years if reforms are not implemented soon.
- The European economy has completed approximately 35% of necessary reforms with the expectation of solving current issues within a 10-year time horizon, yet reform fatigue poses a significant risk if Eurosceptic parties gain further favor, potentially slowing or halting reform processes.
- The European Central Bank may lower interest rates to negative levels, initiate Quantitative Easing in the fall if inflation forecasts remain low, or utilize bond buybacks, with potential bond purchases of $1 trillion expected to raise CPI by 0.2% to 0.8% on the lower side.
- Germany's financial capacity is currently stretched, with internal estimates indicating a need for $20 billion over the next 12 months, raising fears of growing resistance from other core European countries should additional funds be required.
- The UK is identified as the fastest-growing economy in the Western world with 1.5 million private sector jobs created over the last four years, potentially serving as a model for Europe if its current trajectory continues.
- Asset-backed securities markets have contracted by roughly 75% since 2007 to one-quarter of their former size, prompting the ECB to consider proactive measures to reestablish this market.
- Financial consequences of a country exiting the Euro would currently be more adverse than maintaining membership, although a disorderly exit two years from now is considered more realistic than in previous years.
- Corporate behavior in Europe remains cautious with cash hoarding and suppressed capital expenditure, while the UK's growth performance significantly outpaces the rest of Europe, contrasting with Greece's recent 20% to 25% GDP decline despite reported progress.
- G20 finance ministers and central bank governors have agreed to policies aiming to lift collective GDP by more than 2% above the current trajectory over the coming five years, though France and Italy face pressure to resolve fiscal issues without sufficient market pressure.