“Europe is resilient in the face of geopolitical developments and successive shocks and, for the first time in a long while, has the political will to move ahead with reforms such as the Capital Markets Union and the Banking Union.”
That was the message from National Economy and Finance Minister and Eurogroup President Kyriakos Pierrakakis, speaking with International Monetary Fund Managing Director Kristalina Georgieva on the main panel of the IMF’s annual meeting in Bangkok, which focused on building resilient and dynamic economies for the future. Also taking part in the discussion were Thailand’s Deputy Prime Minister and Finance Minister, Ekniti Nitithanprapas, Argentina’s Finance Minister, Luis Caputo, and the Governor of the Central Bank of Nigeria, Olayemi Cardoso.
“We are monitoring developments, but we are not on high alert,” Mr Pierrakakis said, adding that the foundations of the European economy were strong and that, if one word could describe it, it was resilience.
There were problems, he said, including fragmentation of the single market, high energy prices, significant investment needs and pressure on public finances. But European banks were better capitalised today, and the institutional framework was also stronger.
He referred to the agreement reached at the latest Eurogroup meeting on single supervision of European capital markets, noting that more progress had been made in the past 10 months than in the previous 10 years. He said he was optimistic that similar progress would be made on the Banking Union.
He said there was an understanding of the need for “European champions” in every sector of the economy to close Europe’s productivity gap, which he described as its biggest problem.
Over the past 30 years, he said, productivity in the US had risen by an average of 1.8% a year, compared with 1.1% in Europe. As a result, European productivity now stood at 75% of the US level, down from 90% in 2000.
Turning to public finances, he said the average deficit in the European Union was now 3.5% of GDP, compared with 1.7% 10 years ago. He added that the new environment of high government bond yields made the situation more difficult.
Today, he said, only five EU countries have a surplus: Greece, Cyprus, Portugal, Ireland and Denmark. Greece’s message, he said, was that fiscal discipline was a prerequisite for growth, alongside the implementation of reforms with both a national and a European dimension.
At this point, the IMF chief praised Greece, noting that it had moved quickly to repay its loans from the Fund ahead of schedule and was financing the provision of technical assistance to other countries. Mr Pierrakakis added that the government wanted to deliver a positive surprise, with a higher growth rate next year than the IMF forecast, whose estimates are traditionally more conservative.
Ms Georgieva was cautious about whether the global economy would continue to show the resilience to crises that it had displayed in recent years, noting that this resilience rested on fragile foundations.
First, she said, there were significant differences in performance between countries. Those with the closest links to artificial intelligence (AI) stood to benefit most, while other countries were struggling because they imported energy and were not part of the AI supply chain.
Second, she said, rising energy and food prices were fuelling inflation, prompting central banks to tighten policy, while public debt was high in many countries.
Third, she said, AI was the main driver of the 3.1% growth expected this year. But what would happen if enthusiasm for it waned, she asked.
SOURCE: APE