Corridors of uncertainty

Just six months back, observers were ga ga about how EU would be able to withstand the global recessionary phase. But it only seemed to be a matter of time for some detractors. Unfortunately, they were to be vindicated. Come August and EU member countries are falling prey to the recessionary monster. Denmark has become the first EU country technically under recession and the gloom looms large over other 14. The Eurozone is in middle of stagflation and the US crisis is not the culprit. Oil and exchange rates are pulling down the economy and there is nothing that the EU policies can do.

Experts believe that the EU is faring worse than the US. While the current downturn is not expected to last for long, there are structural deficiencies within EU, which will continue to pull it down. The main reason, according to Dr. Nick Bloom, Associate Professor, LSE is that “Europe has worse management and organisational practices, which mean it is very inflexible.” Much of this inflexibility is the result of lack of clarity between the EU (as a central entity) and member nations on policies. Take the labour market for instance. Countries like France have not yet benefited from labour market regulation and with their stringent internal policies, the day is still far. High oil prices are eating into the earnings of people and the lopsided monetary policy of European Central Bank (ECB) is killing whatever economic sentiment is left, thus maintaining a constant level of unemployment and constantly lower levels of growth. Records show that EU has built assets which have under performed. The biggest being the Euro. The growth rates haven’t changed much pre and post Euro. Putting all the blame on the Lisbon agenda is like blaming the thermometer when one has the flu. A recent survey done by New York Times shows that people are unhappy with the way EU is handling the economy. Problems are more internal than external and need to be addressed soon enough.