Introduction
The financial press is now heralding the economic recovery of the Eurozone. For example, Derek Halpenny comments as follows:
In the second quarter of 2017, annual real growth in gross domestic product rose above 2 per cent for the first time since 2011. The Eurozone unemployment rate is also falling more sharply than expected. Recent data from the ECB reveal that foreign investors bought a record €238bn worth of Eurozone equities between May and July of this year….Because of fluctuations in the exchange rate, US investors have experienced an 8.1 per cent loss, while the S&P 500 is up 28.5%….Investors have woken up to the Eurozone recovery. They look set to stay.
Is this optimism credible? In what follows, I offer four reasons why it is not.
1. Migration
The European Union (EU) shares borders with countries where terrorists are active. As a consequence, most EU countries want to limit immigration. Angela Merkel, the Chancellor of German, has gotten herself in political trouble for favoring more open borders than her compatriots. It is not clear how this migration issue will be resolved. And it is important enough to do great damage to the European Union and the Eurozone unless it is soon resolved. Just how it will be resolved is not clear.
2. Brexit
It is also uncertain how Brexit will work out. Britain’s exit request has not set well with other EU countries, suggesting the resolution of economic, political, and budgetary issues will not be easy. As Table 1 indicates, trade between Britain and the other EU countries is far more important to the UK than it is to the other EU countries. This suggests the EU will take a tough negotiating position on trade. There are numerous antagonisms and other matters to resolve that could delay a final resolution for years.
Table 1. UK/EU trade (in bil. US$)
Source: UNCTAD
3. Weak Eurozone Economies
As indicated at the outset, some see a glimmer of hope that the EU is on the “economic road to recovery.” This claim is examines in Table 2. The deficits and debt are expressed as a percent of GDP. Data in red are worrisome.
