• World
    • Africa
    • Asia Pacific
    • Central & South Asia
    • Europe
    • Latin America & Caribbean
    • Middle East & North Africa
    • North America
  • Coronavirus
  • Politics
    • US Election
    • US politics
    • Donald Trump
    • Brexit
    • European Union
    • India
    • Arab world
  • Economics
    • Finance
    • Eurozone
    • International Trade
  • Business
    • Entrepreneurship
    • Startups
    • Technology
  • Culture
    • Entertainment
    • Music
    • Film
    • Books
    • Travel
  • Environment
    • Climate change
    • Smart cities
    • Green Economy
  • Global Change
    • Education
    • Refugee Crisis
    • International Aid
    • Human Rights
  • International Security
    • ISIS
    • War on Terror
    • North Korea
    • Nuclear Weapons
  • Science
    • Health
  • 360 °
  • The Interview
  • In-Depth
  • Insight
  • Quick Read
  • Video
  • Podcasts
  • Interactive
  • My Voice
  • About
  • FO Store
Sections
  • World
  • Coronavirus
  • US Election
  • Politics
  • Economics
  • Business
  • Culture
  • Sign Up
  • Login
  • Publish

Make Sense of the world

Unique insight from 2,000+ contributors in 80+ Countries

Close

Eurozone: Optimism Is Warranted

By Athanasios Dimadis & Jacob Funk Kirkegaard • Feb 09, 2018
Geert Wilders Netherlands, Emmanuel Macron news, euro area stability, eurozone optimism, financial markets 2018 projections, global economy 2018, Donald Trump economy, latest European news, Grexit, Marie Le Pen France

© ArTDi101

In this edition of The Interview, Fair Observer talks to the senior fellow at the Peterson Institute for International Economics, Jacob Funk Kirkegaard. 

Is 2018 going to be the year the eurozone finally leaves behind nearly a decade of financial and political instability? Projections in answer to this question are contradictory. Over the last eight years, the Europeans tended to adopt an optimistic outlook, while the International Monetary Fund chose to keep a more pragmatic approach to Europe’s economic prospects, albeit without being overly pessimistic. This trend seems to be on course for 2018. The IMF avoids being triumphant about the end of the eurozone crisis, warning about political and exterior risks as well as reform challenges that may arise. European leaders maintain a bright outlook about what’s next for the currency union after years of economic turbulence.

However, there seems to be a consensus that the short and long-term future of the eurozone is dependant on the ability within the European Union to eliminate potential risks at the political level by the end of the year. Germany’s political uncertainty persists, with a stable coalition still to be voted in; Italy’s upcoming elections raise questions about the direction the country will take; and, with its momentous debt nowhere near being resolved, the situation in Greece continues to be of concern.

Europe also has to deal with an unpredictable US president in the face of Donald Trump, whose comments on NATO, Europe’s unity and his intentions on trade policy restrictions inflamed tensions between the European Union and the US.

In this edition of The Interview, Fair Observer talks to Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics, about Washington’s perspectives on eurozone recovery, Greece, Brexit and the Trump’s administration relationship with America’s European allies.

Athanasios Dimadis: Over the last few months, there’s been an impression of calm across the eurozone, after several years of a financial and political turmoil. Is this an illusion, or are the economic and political prospects for the currency union becoming more optimistic?

Jacob Funk Kirkegaard: The euro area is currently at around 2.5%, growing at its fastest pace in a decade and well above its potential growth rate. As a result, unemployment is falling — and overall employment is rising — which, together with the decline in immigrant numbers, helps insulate incumbent governments from populist challenges. The upswing is widespread and hence likely to be quite sustainable in the medium term. Hence current optimism is warranted.

Dimadis: Do you agree with the view that the EU’s political recovery came much faster than expected after the initial Brexit shock?

Kirkegaard: Early 2017 was the turning point for populism in the West. The Dutch rejected [Geert] Wilders and his Party for Freedom, and the French rejected [Marine] Le Pen. This was not unexpected by some of us, but evidently a surprise in the English-speaking press and large parts of the financial markets, in which the domino theory prevailed until May-June 2017. Merkel’s re-election was expected and did not add much to a changing political tide in Europe.

Dimadis: What are the greatest political risks you foresee for the eurozone in 2018? Is the Greek case one of them?

Kirkegaard: The main risk for the EU and the euro area in 2018 is a failure to form a German government. This would not lead to populism in Germany, but would cause paralysis in the EU and the eurozone right at the time when the political window of opportunity for reform was open after the election of [Emmanuel] Macron and ahead of the 2019 EU elections. This would be a wasted opportunity, which could set back reform of the euro area by a decade. Greece, in my opinion, does not amount to a major risk to the euro area, as there will be next to no contagion from Greece, no matter what happens in Athens. Greek politics (and economics) is again only a risk to itself!

Dimadis: Seeing a leftist Syriza government in Greece implement austerity measures and painful social reforms requested by the country’s creditors, does it signify an end of political ideology, as a result of the financial crisis?

Kirkegaard: In a way, Syriza had had to travel the road of all centre-left parties since 1989 and adopt a much more market-friendly and fiscally sustainable economic policy. As such, what happened with Syriza in Greece merely confirms prior similar developments in other EU countries. Political ideology, though, is not dead, but has merely shifted from a predominantly economic axis of disagreement over the size of the state etc. to conflicts over how open to immigration and foreign economic influence countries should be.

Dimadis: The Greek government’s view is that 2018 will bring an end to the memorandums and austerity measures. Is this a narrative based in reality?

Kirkegaard: I think 2018 could well see the end of “new austerity” and the memorandums, but it will certainly not herald a return to the past for Greece. Some rollback of crisis reforms is to be expected, but the phased debt relief that the euro area will agree to will prevent material backsliding of reforms in Greece. As such, the Syriza government will predictably declare victory and liberation for Greece, but conveniently forget that it (Syriza) of course lost the political and economic reform war and was forced to implement the victors’ plans. Hence, this to me is real progress for Greece, but does not help Syriza as a political party much. They will try to put lipstick on the pig, but few of their core supporters are likely to be convinced.

Dimadis: What is the IMF’s stance on the Greek crisis to date?

Kirkegaard: I think the IMF is quite sanguine about the need for some further reform of pensions etc. in Greece, and that the country — even with politically realistic debt relief from the euro area — will continue to face a challenge in avoiding backsliding on crisis reforms. Hence, they are probably more generally skeptical about Greece’s prospects than the euro area or many market participants. This is quite normal though, as it is the IMF’s job to be skeptical. To me it remains a mystery why the Greek government hates the IMF so much. The reality is that without the IMF, they would never have gotten any debt relief.

Dimadis: In Washington, is there speculation about what might the next exit from the EU or the eurozone be, after Brexit?

Kirkegaard: Among the realistic Washington-based analysts (i.e. not necessarily including the Trump administration), it is generally acknowledged that there is unlikely to be any additional exits from the euro area or indeed the EU. The travails of Greece highlights how it is essentially impossible to leave the euro, while of course the UK is also making a huge mess of Brexit, proving much of the same point about exit from the EU. There are no countries lining up to leave anymore.

Dimadis: Does the current US administration share the understanding of the Obama White House that a stable Europe means better prospects for the American economy?

Kirkegaard: In general, yes. You will not find many even in the Trump administration who support more exits or the manner in which the British government is embracing and implementing Brexit… Even Trump himself said that he would do it differently (though his tactics would have been worse of course).

Dimadis: The tensions between the US and Europe persist and seem to affect a broad spectrum of bilateral relations between the two allies. How do you see this EU-US relationship evolving over the next few years?

Kirkegaard: I think EU leaders essentially have chosen to wait Trump out, to engage with him when they have to, but not antagonize him unnecessarily (even if it would generally play well politically for them at home). This makes the transatlantic relationship, which for 70 years has been characterized by close political collaboration, a lot less special these days than before. The West is no longer united and its ability to act together in a crisis cannot be taken for granted. This will not cause the transatlantic relationship to collapse, just degrade it to just another relationship with a large economic power. Whether this will change in the long run depends on the reaction of the UK political system and public to Trump. If he is rejected in 2018/2020, a quick reset/return to normal is certainly possible, but if he is not, the strategic alliance we have known since the Second World War will be a hollow shell.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Photo Credit: ArTDi101 / Shutterstock.com

Share Story
CategoriesAmerican News, Brexit news, Donald Trump News, Economics, Europe, Europe News, European politics news, Politics, The Interview, United Kingdom News, US news, US politics news, World Leaders News, World News TagsBrexit news, Donald Trump Europe, European Union news, Eurozone crisis news, eurozone growth 2018, eurozone recovery, Germany coalition talks, Global economy in 2018, Greek Debt Crisis, Italy elections 2018
Join our network of more than 2,000 contributors to publish your perspective, share your story and shape the global conversation. Become a Fair Observer and help us make sense of the world.

Fair Observer Recommends

When Will Boris Johnson Be Committed? When Will Boris Johnson Be Committed?
By Peter Isackson • Jan 22, 2021
Boris Johnson Pushes Unreason to an Extreme Boris Johnson Pushes Unreason to an Extreme
By Peter Isackson • Sep 16, 2020
Negotiating the End of Brexit Negotiating the End of Brexit
By John Bruton • Aug 25, 2020

Post navigation

Previous PostPrevious The Daily Devil’s Dictionary: Donald Trump and “Self-Belief”
Next PostNext Russiaburger: The Trump-Russia Scandal Explained
Subscribe
Register for $9.99 per month and become a member today.
Publish
Join our community of more than 2,500 contributors to publish your perspective, share your narrative and shape the global discourse.
Donate
We bring you perspectives from around the world. Help us to inform and educate. Your donation is tax-deductible.

Explore

  • About
  • Authors
  • FO Store
  • FAQs
  • Republish
  • Privacy Policy
  • Terms of Use
  • Contact

Regions

  • Africa
  • Asia Pacific
  • Central & South Asia
  • Europe
  • Latin America & Caribbean
  • Middle East & North Africa
  • North America

Topics

  • Politics
  • Economics
  • Business
  • Culture
  • Environment
  • Global Change
  • International Security
  • Science

Sections

  • 360°
  • The Interview
  • In-Depth
  • Insight
  • Quick Read
  • Video
  • Podcasts
  • Interactive
  • My Voice

Daily Dispatch


© Fair Observer All rights reserved
We Need Your Consent
We use cookies to give you the best possible experience. Learn more about how we use cookies or edit your cookie preferences. Privacy Policy. My Options I Accept
Privacy & Cookies Policy

Edit Cookie Preferences

The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.

As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media.

 
Necessary
Always Enabled

These cookies essential for the website to function.

Analytics

These cookies track our website’s performance and also help us to continuously improve the experience we provide to you.

Performance
Uncategorized

This cookie consists of the word “yes” to enable us to remember your acceptance of the site cookie notification, and prevents it from displaying to you in future.

Preferences
Save & Accept