Eurozone faces daunting task
If the eurozone gets through the current grave crisis, it could emerge as a much more balanced and dynamic region than it was before. This is the major message of the 2011 Euro Plus Monitor, jointly released by Berenberg Bank and the Lisbon Council. Estonia and Luxembourg come out on top amongst the 17 eurozone members. In an interview with LFF, the principal author of this study, chief economist Holger Schmieding of Berenberg Bank, speaks about its main findings.
What makes you say that Europe could lead the global economy on a host of performance-based criteria?
Forced by the crisis, many Eurozone member countries are now finally delivering reforms needed to strengthen their long-run growth potential, such as labour market and pension reforms. They are also addressing their fiscal problems. We see very few such changes in the US. Once the European reforms bear fruit, the eurozone economy could perform much better than before.
How resilient are Eurozone countries to financial shocks?
The differences between countries are huge. Whereas Germany is very resilient and France also scores reasonably well on this count, many other countries have been exposed as being very vulnerable.
Why do Estonia and Luxembourg come out on top of the Overall Health Indicator ranking?
Both are small and open economies that have made themselves attractive places to invest. Both have very little public debt. Both have a high rate of trend growth and a comparatively low propensity to save rather than consume.
What is your general assessment on Luxembourg?
Luxembourg is a small open economy that has successfully turned itself into a major center for financial and other services. A high propensity to save rather than invest underpins a strong rate of trend growth. Due to its excellent fundamentals on many other counts, Luxembourg can afford a comparatively higher degree of regulation than some markets.
What are the country’s strengths and weaknesses?
- Excellent fiscal position
- Huge current account surplus
- Strongest trend growth among mature Eurozone members
- Low rate of public and private consumption
- Heavily regulated service sector
- High degree of employment protection
How can France safeguard its position in the top league?
France needs to unlock its vast potential. It needs to accelerate pension reforms and make it easier for its well-qualified young people to find a job, partly by relaxing anti-dismissal regulations that make companies reluctant to hire. If France reforms, it should maintain its top rating.
Is Germany Eurozone a driving force?
Germany had been the "sick man of Europe" until 2003. But with the labour market reforms of 2004 and many painful cuts in welfare and pension entitlements, Germany has brought its post-unification problems under control. The German example shows that countries can reform themselves successfully within the confines of monetary union. Because of its new-found economic vigour, Germany is now a major driver of the Eurozone economy. CW