The triple shock facing Europe’s economy: Economist
5 Min Read
Although the problems confronting Europe originate elsewhere, missteps by Europe's own policymakers might exacerbate the harm.
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Pedestrians cross a street as farmers with their tractors block traffic on a main boulevard in Brussels during a demonstration on March 3, 2023 (AP)
According to the Economist, Europe Today faces 3 distinct economic crises.
Overwhelmed by the oil shock that followed the commencement of the war in Ukraine in 2022, the European Union's economy has expanded by just 4% this decade, compared to 8% in the United States; neither it nor Britain has grown since the end of 2022.
Additionally, Europe is facing a boom in cheap imports from China, which, while helping consumers, may damage industries and exacerbate social and industrial unrest. And with Donald Trump's potential return to power in the US, massive taxes on European products can be expected.
The area is desperately struggling to help cover further defense expenses now that US backing for Ukraine has almost run out. Voters are frustrated and leaning toward hard-right parties.
The Economist notes that although the problems confronting Europe originate elsewhere, missteps by Europe's own policymakers might exacerbate the harm.
The Economist claims that Chinese President Xi Jinping is using subsidies to boost Chinese manufacturing, which currently accounts for roughly one-third of global commodities output. He is depending on foreign shoppers to drive growth in the country.
China's worldwide market for electric vehicle shares might quadruple to one-third by 2030. That would put an end to the domination of European national champions such as Volkswagen and Stellantis. Europe's makers of wind turbines and railway equipment are looking east with concern.
Following Trump's potential reelection, they may also be eyeing westwards. When Trump was previously in office, he slapped duties on steel and aluminum imports, eventually including those from Europe, prompting the EU to react against motorcycles and whiskey until a truce in 2021 under Joe Biden.
Trump has threatened a 10% tax on all imports, and his aides are discussing going much farther. Trump is concerned with bilateral trade balances and his team is also dissatisfied with Europe's digital levies, carbon border tax, and value-added taxes.
The Economist notes that One mistake would be to tighten economic policy at a period of vulnerability and better budgeting by European governments will chill the economy.
Meanwhile, inexpensive Chinese goods will immediately reduce inflation. The publication argues that Europe should develop its own economic strategy appropriate for the time being and should take notice of the advantages Chinese enterprises gain from a large home market. Integrating Europe's services economy, where trade remains tough, would allow enterprises to flourish, reward innovation, and replace some lost industrial jobs.
The EU should also change its onerous and fragmented legislation, which also hinders service sectors. Unifying capital markets, including those in London, would achieve the same result. Instead of allowing farmers to stymie trade treaties, as has happened in numerous recent discussions, European diplomats should sign them wherever they are still available.
Reuters: Russia asset seizure could trigger global collapse
A senior EU official stated in mid-March that while Brussels is exploring legal avenues to transfer frozen Russian assets to Ukraine, it should reserve a portion of the funds as a "safety net" in case Euroclear, its clearing house, encounters difficulties that could potentially disrupt the entire global financial system, as reported by Reuters.
The West has frozen approximately $300 billion in assets belonging to the Russian central bank since the onset of the Ukraine war two years ago, with Euroclear in Brussels holding roughly €191 billion ($205 billion) of these assets. The EU is reportedly expediting the decision to allocate the first installment of up to €3 billion from the profits generated by frozen Russian assets to Kiev, with plans to do so as early as July.
However, according to an unidentified EU official speaking to Reuters o, Brussels must guarantee that financial stability is not compromised. The source added that once the war concludes and all transactions can be finalized, any funds provisionally withheld will also be transferred to Ukraine. However, a substantial amount needs to be retained in Euroclear due to the anticipation of numerous claims against it.
The official cautioned that if the West proceeds with expropriating the funds, the Russian central bank is expected to seize approximately €33 billion of Euroclear funds held in the national securities depository in Moscow. Additionally, Russia may pursue legal action to seize Euroclear cash from depositories in Hong Kong and Dubai.
Moscow has consistently warned of retaliatory measures if the West follows through with threats to confiscate Russian assets. Last month, the Finance Ministry stated that Western states and companies still maintain investments in Russia, which could be at risk if the frozen funds are accessed.
The EU official further warned that if Western banks initiate lawsuits against Euroclear for the loss of their investments in Russia, it could lead to the complete depletion of Euroclear's funds.
