Inflation has been the elusive economic goal for Europe across 2015. As oil prices begin to stabilize at lower levels in the new year, 2015’s large crude falls are likely to have less impact on the region’s inflation. But it’s set to remain under pressure from improving but still high joblessness and slow wage growth, as well as more permanent technological shifts.
And, as the Federal Reserve gradually lifts its interest rates across 2016, with the ECB still hinting at action in the other direction, both the ECB and the Bank of England are on track to significantly lag the Fed. That’s expected to maintain some downward pressure on the sterling and the euro, Business Spectator reported.
As the region’s economic recovery continues to consolidate, the ECB expects real eurozone GDP growth at 1.7% in 2016, slightly up from an estimated 1.5% for 2015. ECB's Harmonized Index of Consumer Prices inflation is tipped to average 0.1% in 2015, but 1% in 2016. The UK is on track for GDP growth of 2.7% in 2015 and 2.5% in 2016, the Bank of England says.
Migration
By late December, numbers of migrants and refugees entering the EU by land and sea in 2015 had tipped one million. And Europe was just one month into its first coping strategy, having shifted from internal mud-slinging to pressure on Turkey, along with increased spending on external border blocks and patrols.
In return for €3 billion of aid and reanimated EU membership talks, Turkey agreed in late November to tighten its border and do more to incentivize refugees away from illegal migration routes. But one month on, some EU nations were decrying the deal as inadequate, citing lack of action from Istanbul and refusing to sign for resettlement quotas without more evidence of the plan’s effects. In any case, it’s not due to become fully operational until mid-2016.
Britain and Greece
Despite its beacon of economic stability within the EU, Britain has snatched Greece’s former status as the union’s case study on membership debate amid seething nationalism. Politically speaking, the Brexit issue is only just getting started: the real drama is all to come in 2016. Prime Minister Cameron’s referendum timeline was always too short to achieve any real change vis-a-vis Brussels ahead of the poll.
Greece itself won’t see an iota of rest in 2016, despite the threat of imminent Grexit deflating in late 2015. Having failed his push for a new ‘national sovereignty through austerity refusal’, Prime Minister Tsipras is now pushing for ‘return to national sovereignty by getting reforms implemented as soon as possible’.
Euro
The euro has been through very tough times in recent years, battered by political, economic, and financial storms, but it is not out of the woods yet. It is said that 2016 looks set to put the European single currency through the wringer yet again. A break below parity for the euro versus the US dollar looks a reasonable bet in the next 12 months.
Disturbing structural fault lines remain under the currency. A less stable political picture, the worsening economic outlook and extremely fragile financial fundamentals add up to a difficult trading backdrop for the euro in the months ahead.
Economic and political divisions are widening in the 19-nation eurozone block and threaten to spin out of control unless Europe’s leaders take bolder steps to bridge the yawing gap between the eurozone’s haves and have-nots.
The politics of inequality stand at the heart of deepening stresses between prosperous Germany and the eurozone’s hard-up economies. The contrasts could hardly be more stark. Germany boasts low unemployment, a vibrant economy and greater national wealth. Less well-off nations are struggling with high unemployment, stagnant growth and are saddled with crippling debt.
Cohesion at Risk
Anger is mounting and Europe’s traditionally strong social and political cohesion is at risk. Winds of political change have been sweeping across the eurozone ever since the global financial crisis first broke in 2008, precipitating recession, high unemployment and financial mayhem in its wake.
The political deadlock in Spain after December’s inconclusive general election result is the most recent sign of Europe’s spreading political crisis. Spain’s left-wing Podemos party has risen to become the country’s third largest party and is demanding an end to austerity and the introduction of new measures to protect the poor and unemployed.
It is not just the economically distressed nations like Greece, Spain, Italy, Portugal and Cyprus which are at risk. High unemployment levels in Europe’s economic heartland like France highlight the widening gulf with Germany’s prosperity.
Europe’s policymakers need to take bolder action. The global economy is losing momentum and the inevitable consequence will be slower growth and rising unemployment in Europe. The continent needs faster growth and stronger job creation, spread equitably to nurture political unity.
