World Economy

Economic Crisis Still Looms Over Eurozone

Economic Crisis Still Looms Over EurozoneEconomic Crisis Still Looms Over Eurozone

Poor economic data, falling stock prices, rising unemployment: Europe is still in crisis mode. Without countermeasures, the survival of the eurozone and its currency might be at risk, senior economists have told DW.

Many economists agree: The risk that Europe may stagger back into the economic abyss is far from over.

“We now have a different form of the euro crisis,” analyst Robert Halver of Baader Bank said in an interview with DW. “Previously, the national debt was the focus in discussions of the eurozone crisis. Now, the focus is on the risk of a renewed recession.”

In many countries of the euro zone, serious reforms to improve regional competitiveness had not been undertaken, Halver said.

“But only economic reforms will bring business investment into these countries and so generate stable new jobs,” he added. He feared a return to “the times of debt barbarianism, where government policymakers think they must try to stabilize the economy by taking on more debt.” That, in his view, would be very dangerous.

 More Dangerous

The economist and investment manager Max Otte was one of the few economists who predicted, in 2006, the world financial crisis that started a year or two later. He believes that the current economic downturn could prove even more dangerous than the one set off by the Lehman bankruptcy of 2008.

“The financial crisis six years ago started with a panic. People realized that the world financial system might break down. We solved the problem with great heaps of cheap money,” Otte told DW.

“However, there was a failure to follow up with structural reforms, and a number of fundamental problems were not addressed, let alone solved.”

 Negative Trends

The consequences of these policy failures are now becoming apparent – in an accumulation of negative trends. The national debts of most European countries have risen even further, and southern Europe is in a catastrophic depression with mass unemployment. The existing economic policy package has failed to regenerate growth.

International political developments are making things even worse. “The economic war we are stupidly waging with Russia has primarily harmed Germany and Austria. ISIS and the situation in the Middle East are further worsening the mood,” said Otte.

Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, fears the European economy will stay weak for years to come. He recently told reporters that he saw no easy way out of the bad situation in the southern euro countries, adding: “The crisis is very clearly not over yet.”

 Alarming Signal From Italy

The Ifo Institute has observed volumes of capital flight from Italy in recent months that were last seen before the ECB’s eurozone government bond support pledge two years ago. 67 billion euros of capital were withdrawn from the country in August and September, when creditors refused to replace old loans with new ones.

“This is an alarming signal that shows the capital markets are once again losing confidence,” said Sinn.