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News : European Last Updated: Nov 13, 2009 - 4:31:25 AM


Eurozone economic climate indicator improves again; Ireland seen as only member country economy worsening in coming six months
By Finfacts Team
Nov 12, 2009 - 6:06:46 AM

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The Ifo Economic Climate for the Eurozone improved in the fourth quarter of 2009 for the third time in succession. The rise in the Ifo indicator is primarily the result of more favourable expectations for the coming six months, but also the assessments of the current economic situation have improved slightly. This shores up hopes that the recovery in the Eurozone economy will continue in the first half of 2010. Ireland is the only member country of the group of 16, that is seen as worsening in the coming six months.

Ifo is a German institute for economic research, based at the University of Munich.

The expectations for the coming six months improved in all countries of the Eurozone, except Ireland. The economic expectations are especially optimistic in Italy, Germany and the Netherlands. In Spain and Greece, however, the WES experts remain cautious in their expectations although less so than in the previous quarter. In the entire Eurozone it is only in Ireland where a further worsening of the economy is anticipated in the coming six months. In nearly all countries in the Eurozone the current economic situation, however, is still viewed as quite unfavourable.

The inflation expectations for 2009, at 0.7% on average for the year, are clearly below the target of the European Central Bank. In the course of the coming six months, a higher rate of inflation is expected. An increasing number of World Economic Survey (WES) experts anticipates an increase in key interest rates in the coming half year. The anticipated rise in capital market interest rates in the coming six months is seen as even higher.

The US dollar and the British pound are seen as clearly undervalued vis-à-vis the euro. Nevertheless, the WES experts do not expect the US dollar to appreciate over the euro in the coming six months. Instead, they anticipate a general stabilisation at the present level.

The Ifo World Economic Survey (WES) investigates world-wide economic trends by polling transnational as well as national organisations in different countries. This allows for a rapid, up-to-date assessment of the economic situation prevailing around the world. The full set of results will be published on November 19, 2009. The 4th quarter 2009 Eurozone results, which are published in advance, are based on the responses of 265 economists.

WES is conducted in co-operation with the International Chamber of Commerce (ICC) in Paris.

Post-Lisbon Agenda: Looking to make Europe fit for the future

The reference to Lisbon, has nothing to do with the Lisbon Treaty but relates to an agenda of reform that was agreed in Lisbon, in March 2000.

Deutsche Bank Research on Wednesday, published a report, which says that global competition, climate change and population ageing, call for responses that Europe cannot afford to put off indefinitely.

It said it is high time for the EU and the member states to start thinking about a follow-up strategy for when the Lisbon strategy expires in 2010. A lesson to be learnt from the problems of the previous strategy is that for more effective implementation the reform targets of a post-Lisbon agenda must find their way into national political debate. That is the only means of building up effective reform pressure through national channels to make Europe fit for the future.

DBR says the main lesson to be learnt from the problems with the Lisbon Agenda, chiefly with implementation of its targets by the member states, is that the reform goals in a new growth strategy must be made the subject of national political debate, so that reform-weary
governments are faced with the prospect of being voted out of office and power by a disgruntled electorate.

However, if the rest of Europe is like Ireland, interest in reform will continue to be only evident during a dire economic crisis and then there is never consensus because of a weak governance system matched by powerful vested interests.

This week, the Financial Times reported that President Nicolas Sarkozy will next year press ahead with measures to make people work longer for their pensions, to reform France's cash-strapped retirement system, according to a senior official.

It said plugging the deficit in the pay-as-you-go pension system is regarded as a litmus test of his appetite for further economic and welfare reforms and his willingness to curb the ballooning public deficit as he enters the second half of his five-year term.

However, there have been fears among business leaders and economists that reform could be postponed until after the 2012 election because of the sensitivities exacerbated by a weak economy and high unemployment.

But the official told the Financial Times: "There will be a decision. I have no doubt about that. It is unavoidable." The shortfall in the pensions section of the social security system is forecast to hit €10.7bn (£9.5bn, $16bn) in 2010 and is growing rapidly.

Gilles Moëc, senior economist at Deutsche Bank, said pensions were a litmus test for French governments intent on restoring order to the public finances.

"Everyone knows it is the hardest reform," Moëc said."It caused the collapse of Alain Juppé's government in 1995. Nicolas Sarkozy needs to show that he can do better than the last burst of reformist zeal by a centre-right government."

In a commentary on the new German government, Deutsche Bank chief economist, Dr. Norbert Walter, writes: "Financial market crisis, companies going under, the healthcare system paralysed, pension provision eroding the public purse, the environment on the brink, green technology becoming American and Chinese, taxes remaining punitive. Europe has its treaty and Germany relinquishes its role as an architect.

The centre-right government is in place: what is its message? “Habemus Papam” and a young hopeful as health minister. Where are the Berlin players who can shape events on the Brussels stage and where are the personalities who enjoy the same status as their US counterparts? How will Germany present itself at the G-20, in Copenhagen and in the Council of Ministers in Brussels? How will Germany punch its weight and convey its ideas on the world order that needs to be established following the collapse of the system based on leverage?

All this cannot be achieved by sticking to the status quo, selection of personnel, considering their patience to wait in the wings, carving up jobs conditional on regional representation and implementing mini reshuffles. That is not the way to preserve and cultivate Europe’s heritage and share it with the rest of the world. There are more talented people than this new cabinet suggests. The world wants Germany to produce more assiduous and more assertive personnel. Organisation is needed for both the process of searching for the right talents in this sense and for the commitment of the public to provide these talented people with societal and media support. Germany’s citizens owe it to their country to implement these initiatives."

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