© Dr. James Nixon
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While European Commission President Jose Manuel Barroso believes that the euro has been saved and the euro crisis is a thing of the past, German Chancellor Angela Merkel thinks that the economic environment will be more difficult this year than in 2012. Why is there such a discrepancy in opinions of European officials and whom should we believe?
I think the reality is that the European situation at the moment is quite complicated and there are different aspects the officials point to. I consider the key issue where Jose Barroso is pointing at, is what has really changed compared to the last year - the ECB has indicated that they are fully prepared to be an effective lender of last resort for both banks and governments through the Outright Monetary Transactions programme. That means that the worries regarding financing like whether banks and countries are going to run out of money, or the Euro area is going to break up – these sorts of concerns are in the past. They were a feature of last year, but they will not be the issue of 2013. However, this is moving more into a direction what Angela Merkel is currently suggesting, the fact that we have a backstop in place and we have removed the threats about literally running out of financing does not alleviate or does not change the need for significant adjustment programme in many European countries. This still is going to be the case that both this year and next year a lot of countries will be undertaking significant fiscal planning and far-reaching structural reforms to improve competitiveness. These aspects again are going to be challenging and painful.
I would not say that the European crisis is over, yet I would say that the course of the crisis has shifted, it has moved from being at the edge of the precipice, "we are all going to die tomorrow" kind of crisis to one where actually the reality is - what Europe now faces is simply several years of hard-work.
The jobless rate across the Euro bloc hit a new historic record of 11.8% in November. When do you think we will see the first signs of unemployment rate declining?
In my opinion, we should start to see the unemployment rate peak very soon. I mean the reality is that 2013 is going to be a year of very divergent performance in Europe, with probably countries like Spain and Italy continuing to experience recession. However, Germany should escape that downturn and should see an improvement in growth very soon. Moreover, I think with this imbalance the European labour market should at least stabilize and we should start to see the unemployment fall in the second half of 2013.
There are some countries which are planning to access the Eurozone next year. Do you think this a right time to do that given that there are still economic troubles in the Euro bloc?
As I have been describing, there are significant adjustments taking place in many countries, and I believe that implies that Europe still has a lot of work to do. Thus, I believe joining the Eurozone is brave to do it at this stage.