What part has the EU played in the current economic situation?

More than 2,500 business leaders and politicians discussed the current economic situation and took part in the annual World Economic Forum (WEF), which ended in the Swiss ski resort of Davos on Saturday, January 26. The theme of the meetings was Resilient Dynamism, with the largest number of discussion sessions focused on the difficult economic situation in the Eurozone.

At a closing panel on the economic outlook, International Monetary Fund (IMF) Managing Director Christine Lagarde said that the global economic situation is in a “timid recovery.”

“It is timid because there is still a bit of uncertainty as to what will happen in the euro zone, what the outcome of the discussions between Congress and the president and the administration in the US will be, what will be the consequences of the new Japanese policies that have been announced, and what will pan out in China when the new leaders take over in March,” she explained.

The IMF chief also called on world leaders to be vigilant and active.

“Keep the momentum, it’s not time to relax,” Christine Lagarde said in an interview to a foreign TV channel.

According to Mario Draghi, President of the European Central Bank (ECB), conditions on financial markets have improved considerably, but policy makers are still waiting for signs that the economic situation has turned for the better.

“The perception we have at the ECB is that the level of economic activity is in the process of stabilizing at a very low-level. We foresee a gradual recovery in the second part of the year,” he said.

However, many foreign analysts agreed that the risks in Europe are still high.

The Prime Minister of Great Britain David Cameron who promised to held an in-out referendum on Britain’s membership of the European Union, stated that the UK would oppose all deepening of political ties within the EU.

“Countries in Europe have their histories, their traditions, their institutions, want their own sovereignty, their ability to make their own choices, and to try and shoehorn countries into a centralized political union would be a great mistake for Europe,” he said.

“Britain is a major European player on all of the issues where Europe needs to act – being more competitive, fighting terrorism, combating climate change – we are right out there leading the arguments, making the arguments,” David Cameron added and stressed that it is the sort of political action the UK needs.

However, the Prime Minister assured that Great Britain remains committed to the European Union, seen as an alliance devoted to facilitating business and a functioning single market.

Analyzing the results of the forum, Dr. Nariman Behravesh, Chief Economist of IHS drew attention to the relief that prevailed in Davos.

“The general mood in Davos was one of relief that a number of crises – in particular, the Eurozone crisis, the US fiscal cliff and China hard landing – were avoided in 2012. But there was also concern that: “The underlying problems, especially in Europe and the US, have not been solved,” he said in an interview with news agency PenzaNews.

According to him, the biggest problem identified with our economic situation was inadequate growth in most regions of the world – developed and emerging.

“There was a consensus that more microeconomic reforms, such as deregulation, more competition and trade liberalization, are required to bring about stronger growth in the long-term,” Chief Economist of IHS added.

He also noted that there was optimism about the economic outlook for the US and Asia, especially China.

“Both US and Chinese growth are expected to accelerate by year-end growing at roughly a 3% and 8.5% rate, respectively. The Eurozone will continue to contract at a rate of -0.2 this year. Russia can be expected to go at a rate of around 3.5%,” said Nariman Behravesh.

Alan Oxley, one of Australia’s most authoritative advisers on international trade, Chairman of the Australian APEC Study Centre and Chairman of World Growth, also pointed to the mood of relief in Davos.

“The Head of the Swiss based bank UBS warned about the complacency over the debt crisis in Europe. The perspective in the rest of the world is that only two options are realistic in Europe – a huge destruction of wealth, the like of which has not been seen for 70 years, or spreading the burden of the debt workout across the people of Europe, flattening growth for a decade or more. The mood at Davos seems to suggest this is not fully understood,” the expert said.

He also noted that some business figures and academics at Davos talked about the need for business to adopt social and political objectives. However, according to him, excessive focus on non-economic objectives by both government and business is the root cause of the European debt crisis and our current economic situation.

“It is time for big business to concentrate on what their shareholders want – a good return on capital – and leave improvement of the political and social condition to governments,” Alan Oxley emphasized.

In his opinion, emerging markets, in particular in the Asian Pacific region, will for the next decade drive global growth in markets.

“This is recognized by the heads of global consumer goods businesses. The established, mostly US and European-based, global corporations will face competition from locally-based companies in the emerging market economies. If they focus on producing higher-cost “socially-responsible” products, they will lose market share to locally-based competitors and deliver diminished returns to their shareholders,” Australia’s adviser on international trade said.

He also stressed that there is disconnect between thinking in Europe and the rest of the world about the importance of ensuring continuing growth.

“This was clear at the UN Rio Earth Summit in June 2012. Leading European nations and the European Commission pressed for establishment of a global “Green Economy” as the new objective for the UN. The overwhelming majority of the world’s nations rejected that and restated the long-standing consensus in the UN that sustainable development must give equal regard to growth, protection of the environment and the social dimension,” he explained.

“The outcome of Davos forum suggested that the syndrome that has beset Europe for nearly two decades that economic growth is not a leading priority is still shaping thinking there,” Alan Oxley said.

Ways to improve our economic situation?

Marta Andreasen, member of European Parliament’s Budget Committee expressed the view that the European Union’s stature in proceedings was diminished.

“The Buzz words at Davos seemed to be resilience, growth and flexibility; in short how to weather the economic storm and come out fighting. Go back a decade and Davos was very much an American-European Affair, focused as it was on raising the EU’s lethargic growth rates and attempting to bring it up to the American benchmark of dynamism. Depressingly nothing has really changed today. Except for one thing: now an EU recovery holds about as much importance to a South-American, Israeli, Emirati or Indian entrepreneur as, to quote an influential commentator, “what the cat had for breakfast,” she said.

“As a eurosceptic, my position is viewed by Brussels as biased and overtly political. Yet many facts have emerged from Davos that make my views incontrovertible,” member of European Parliament’s Budget Committee added.

According to her, the Euro has abjectly failed to deliver its stated aim of making the EU “the most dynamic knowledge based economy in the world by 2010” as envisaged under the Lisbon Treaty.

“The problem stems from the EU’s stubborn desire to become a United States of Europe. It has of course many similarities: a single currency, a common set of laws and open borders courtesy of Shengen but it cannot replicate the American entrepreneurial model. The reason is because it doggedly sticks to outdated policies, heaping red tape and unnecessary, burdensome and growth-killing legislation on business. It also fails to bring any new ideas to the table. Take the controversial Financial Tax for instance: this is a rehashed Tobin Tax that Sweden managed to reject after it almost killed their economy in the 80’s,” the politician explained.

“Again turning to America, let us think of the recent success stories: Google, Microsoft, Apple, Facebook to name but four. Now try doing the same for Europe. You simply cannot,” Marta Andreasen emphasized.

Moreover, according to her, Europe wants to be a superpower but it goes about it completely the wrong way by imposing integration and centralizing economic activity. If it carries on as it is then in future meetings it will be pushed further and further away from the top table, the politician believes.

David Cameron dealing with the British economic situation

“David Cameron was right in his speech when he said that Europe needs to change but he massively underestimates the ability of the EU Institutions to turn away from their lemming-like path towards dogmatic and inflexible federalism. To sum up, resilience, growth and flexibility simply cannot exist in the EU as it is currently constituted. Entrepreneurs at Davos know this. It is now up to the EU to wake and smell the Swiss gluhwein,” said Marta Andreasen alluding to David Cameron’s speech in which he urged tax-avoiding firms such as Starbucks “to wake up and smell the coffee.”

In turn, Vice-Chair of European Parliament’s Committee on the Economic situation and Monetary Affairs Pablo Zalba Bidegain stated that to make our economic situation work, the EU needs a team composed of three angles: public administration, society and the private sector.

“In addition, we need credit and, to generate it, a clear and harmonized legal framework. The next step will be to create a competitive economy, crucial in a global world, and to encourage development. We have to focus all our efforts in achieving a high competitive society, as Europe 2020 envisages,” the politician said and added that youth unemployment must be the first task to tackle.

According to him, politicians have to assure high levels of education and the necessary environment to create opportunities.

He also suggested that there is not only an economic crisis in the European Union, but also a political one; therefore the EU needs a political solution.

“The first step is to stabilize the financial markets sending a message of trust. Confidence is the most important skill to foster and develop,” Vice-Chair of European Parliament’s Committee on the Economic situation and Monetary Affairs said.

Meanwhile, in his opinion, this downturn moment is also an opportunity to balance the drawbacks and strengths.

“We have to work in the creation of solid cornerstones. Development will come over these pillars and with it growth and employment. To manage both, we need fiscal consolidation, which is being accomplished. We must continue along this path. Consolidation must be accompanied by reforms focused on education, investments creation, innovation and entrepreneurship,” the deputy noted.

According to him, the EU politicians have to boost a more opened and flexible Europe and one of the first goals to achieve this objective is a real single market.

“The EU is going step by step, moving in a more integrated and coordinated future based on stability. We have realized the importance of a genuine Economic and Monetary Union,” Pablo Zalba Bidegain said.

He added that the EU should promote a spirit of entrepreneurship, particularly among young people who are the main characters of the present and future.

“Every European citizen has to join in a massive effort to “turn the tide.” Companies, society and governments will have to co-operate, drive through reforms, and inject some optimism and confidence to achieve the quest for jobs and growth,” the politician noted.

In particular, Spain’s economic situation, according to him: “Is going to be the surprise of 2013.”

“We will continue with structural reforms and fiscal consolidation. We are working on better frameworks for entrepreneurship and innovation. And we count on frontrunner companies, second to none skills and an unrivalled geostrategic position to become, once again, a competitive economy in our interdependent world,” the MEP concluded.