In Europe, growth is a curse!

May 19, 2015 0 By Michel Santi

Let us be inspired by the British example where, against all expectations, David Cameron was re-elected Prime Minister. He had previously imposed on UK’s citizens and economy a pitiless austerity. But, a few months before the election he authorized a recovery in economic growth. Had he not done so, he would not have been re-elected! Given the fundamentals of the depressed UK economy, it is a good bet (and sadly feared) that the resumption of austerity measures by a government in a frenzied spasm of economic conservatism will complete the decimation of that country’s middle class.

But this British decline is no reason for any rejoicing. Our own continental European leaders have adopted a similar attitude. Indeed, in the Continent there has been some growth but for the wrong reasons. Why does economic confidence improve? And what allows the European Commission to predict GDP growth of around 1.3% for the EU in 2015? It is certainly not the needed vital reforms that pulled Europe out of stagnation…because Europe is, after more than five years of acute crisis, still not a ‘’Union’’ worthy of the name. These bright spots are actually due to activism from the European Central Bank. Its courageous program of quantitative easing has finally sent a clear signal to economic players that a European institution – albeit not elected! – is still concerned about their fate. The collateral effect of this “QE” has been an improvement of the competitiveness of Eurozone products through depreciation of the Euro currency versus all others. However, do not rejoice too quickly because, despite its gradual fall in currency markets, the effects of this Euro weakness will only yield concrete positive results over the long term. The Japanese example – both in terms of “QE” and Yen depreciation – clearly indicates that the favorable impact of a national currency’s devaluation takes two years to be reflected in a country’s economy performance.

In reality, the slight upturn in the economy and the increase in consumer and investor confidence come from a pause in fiscal austerity and the shelving of tax consolidation in our countries. It is not the fall of the Euro that we must thank for this somewhat positive economic performance. Instead, it is the lessening of intolerable pressures on our citizens – assaulted by rising taxes, confused by the increase in unemployment and stunned by the decrease in public spending – which now allows an automatic restoring of some economic health. This is precisely why this mild recovery is very bad news for Europe. It will feel much less urgency to adopt fundamental changes and is therefore doomed to wallow in its torpor.

The European Union has no more reason to show understanding towards Greece now that she has returned to growth. Now, under less pressure from their citizens (alleviated by some easing of austerity) the EU leaders have shown a complete lack of foresight in their posture vis-à-vis Greece. And they are now more likely to refuse any concessions. The consequence will be a Greek exit from the EU with disastrous effects for the world economy and for the European project. And this event will destroy any hope for political and fiscal union.

When and how will our current leaders understand that our European continent will necessarily be exposed to other crises because they failed to create a Union in good standing? If there is a lesson to be drawn from the UK election, it is that the economic situation and sentiment of voters will improve six to nine months after the lifting of fiscal discipline. However, David Cameron will inevitably intensify the pressure on the ‘’99%’’ now that he was re-elected and European ‘’Austerians’’ are already taking credit for the return to slight economic growth. These leaders decidedly do not understand that it was their feeble fiscal consolidation that forced Mario Draghi to implement its quantitative easing program. Just as they will refuse to implement genuine European solidarity under the false pretext, and intellectually dishonest belief that it was their austerity measures that boosted growth.

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