Blog Post

How can Europe escape recession in 2015?

A clear priority for 2015 will be to manage proactively the fallout from a possible continuation of the conflict with Russia. In addition, the euro area must amplify its efforts jumpstart growth and create new job opportunities. To grow, Europe needs to invest.

By: Date: December 23, 2014 Topic: European Macroeconomics & Governance

2014 will be remembered for two major unexpected developments. First, the European Union was caught by surprise by the return of geopolitics. The annexation of Crimea, the military conflict in Ukraine and the increasing tensions between Putin’s Russia and western leaders were unexpected. The conflicts in Iraq and Syria and the rise of ISIS extremists found the West equally unprepared. One can speculate if the economic and political weakness of the West in recent years has contributed to the rise of alternative political concepts. But certainly, European Union countries have realised that these conflicts on their doorstep matter. From an economic point of view, these events have arguably had negative effects on confidence and have – together with the sanctions imposed on Russia – contributed to disappointing growth figures. Also of concern are the direct effects on trade and especially on the security of energy supply.

Second, the economic performance of the euro area has fallen on the wrong side of official forecasts. In November last year the European Commission predicted real GDP growth of 1.1 percent for the euro area in 2014, but these numbers have been revised downward to 0.8 percent. Inflation has been subject to similar revisions, and is dangerously low to achieve debt sustainability and price adjustment. Some progress has been made with unemployment but it is slow and numbers continue to disappoint in Italy in particular.

Given this backdrop, it is clear that Europe’s New Year’s resolution should be to implement policies needed to reduce military conflicts in EU neighbouring countries, and to increase growth and jobs.

For sure, a clear priority for 2015 will be to manage proactively the fallout from a possible continuation of the conflict with Russia. I would certainly emphasise the importance of reducing our collective dependence on gas imports and strengthening our single market for energy. In particular, we should ensure the energy security of all EU member states. The European Commission’s work on the so-called Energy Union is central in this respect. Constantly reviewing whether the sanctions against Russia are actually effective is also essential to justify their continuation, despite their negative impact on economic growth in the EU and in Russia.

To grow, Europe needs to invest

Furthermore, the euro area must amplify its efforts jumpstart growth and create new job opportunities. To grow, Europe needs to invest. The decline in investment in the last seven years has been substantial and the EU is now well below long-term investment trends. A major reason for such weak investment is a lack of trust and confidence. Consequently, one of the most important challenges for policymakers will be to focus on increasing private-sector confidence. Predictability of policy is central. Even more important is regaining trust among European partners.

Such lack of trust is partly caused by different intellectual traditions and, by diverging interpretations around the main causes of the current crisis and contrasting views regarding the appropriate measures needed to tackle it. These differences in analysis between mostly Germany-based and other economists translate into different assessments and undermine mutual trust. This mistrust among European partners is in turn perceived negatively by investors.

We need to acknowledge that the euro area has both significant structural problems and significant demand-side problems

We need to overcome the polarisation of this debate and acknowledge that the euro area has both significant structural problems and significant demand-side problems. Low productivity growth and substantial divergences in competitiveness and unit labour costs in different EU countries call for bold structural reforms. Such reforms should include, for example, better training to help jobseekers find new jobs in different sectors. These reforms will be mostly national but also new initiatives that deepen the single market, for example for digital services, are also fundamental to boosting productivity and creating new investment opportunities.

Initiatives that help kick-start demand in the euro area are equally important. The European Central Bank has been far too slow to react to the deteriorating inflation outlook and needs to be more proactive in 2015. However, monetary policy alone will not be sufficient. As well as improving the framework conditions for private investment, the EU should mobilise public resources for public investment projects. While the investment plan set out by European Commission president Jean-Claude Juncker is an improvement in this respect, the public resources earmarked are clearly insufficient and a top-up will be needed. The EU will also have to become bolder in tackling the banking problems that still weigh on credit and lending in a number of countries. More policy initiatives are required to re-ignite growth in the EU.

This article was published by Rzeczpospolita in Poland, by Napi Gazdaság in Hungary, by O Globo in Brasil and will be published by El Pais in Spain, by Capital in Bulgaria, by Kathimerini in Greece and by Caixin in China.

Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

Revision of the Posted Workers Directive misses the point

The Commission’s proposed revision of the Posted Workers Directive has been approved by the European Parliament’s Employment Committee, which welcomes the arrival of “equal pay for equal work”. But the revision will have little impact, and was largely unnecessary. Instead we should focus on the fight against bogus self-employment, social security fraud and undeclared work.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: October 18, 2017
Read article

Blog Post

An update: sovereign bond holdings in the euro area – the impact of quantitative easing

Since the European Central Bank’s announcement in January 2015 of its quantitative easing programme, national central banks have been buying government and national agency bonds. In this post we look at the effect of QE on sectoral holdings of government bonds, updating calculations that we published initially in May 2016.

By: Pia Hüttl and David Pichler Topic: European Macroeconomics & Governance Date: October 10, 2017
Read article Download PDF

External Publication

European Parliament

The single monetary policy and its decentralised implementation: An assessment

This paper assesses the decentralised implementation of monetary policy by the Eurosystem in terms of its transparency, efficiency and simplicity. Compared to the Fed, the Eurosystem seems to have higher staff numbers and operational costs for similar tasks.

By: Francesco Papadia and Alexander Roth Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: October 4, 2017
Read article More by this author


A Jamaican Germany is good for Europe

After a surprising election result, Europe is closely watching German coalition negotiations. A so-called Jamaica coalition of conservatives, liberals and greens is the most likely outcome, but many fear this will be bad for the EU and the Eurozone. Not so, argues Guntram Wolff. In fact, a shift to Jamaica could be good news for Europe.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: September 29, 2017
Read article Download PDF More on this topic

Policy Contribution

A European perspective on overindebtedness

The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.

By: Nicolas Véron and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: September 28, 2017
Read article More on this topic


A resilient Euro needs Franco-German compromise

In a piece signed by 15 leading French and German economists, Nicolas Véron lays out a path to a more sustainable Euro. Germany will need to accept some form of risk sharing. France will need to allow more market discipline. But the two countries can find a common vision for reforms

By: Agnès Bénassy-Quéré, Markus K. Brunnermeier, Lars Feld, Marcel Fratzscher, Philippe Martin, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, Jeromin Zettelmeyer, Henrik Enderlein, Emmanuel Farhi, Clemens Fuest, Pierre-Olivier Gourinchas and Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: September 27, 2017
Read article Download PDF More by this author

Policy Contribution

Dutch Senate

Europe’s fourfold union: Updating the 2012 vision

The depiction of the euro area/European Union (EU) as a ‘fourfold union’ emerged in the first half of 2012 at the height of the euro-area crisis. In the past half-decade, Europe’s financial union has been significantly strengthened but remains incomplete and is challenged by Brexit. No consensus has been found on fiscal union and economic union has not made material progress, but political union might have advanced further than many observers realize.

By: Nicolas Véron Topic: Dutch Senate, European Macroeconomics & Governance, Finance & Financial Regulation, Testimonies Date: September 21, 2017
Read article

Blog Post

How has banking union changed mergers and acquistions?

The aim of the banking union was to break the toxic link between banks and states. One way of achieving this is by increasing cross border banking through mergers and acquisitions. This blog shows that little has changed in M&A activity since the banking union was launched. In fact, we seem to be witnessing a slight re-nationalisiation of banking consolidation.

By: Inês Goncalves Raposo and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: September 13, 2017
Read article More on this topic More by this author

Blog Post

Speech by Peter Kažimír at Bruegel Annual Dinner 2017

Peter Kažimír, Slovakia Finance Minister, delivered the keynote speech at Bruegel's Annual Dinner 2017, held on 7 September 2017.

By: Peter Kažimír Topic: European Macroeconomics & Governance Date: September 7, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic


Europe must seize this moment of opportunity

As the EU enjoys a period of growth and relative stability, there is finally room to undertake long-needed reforms. But it is vital to act soon, and priorities must be set. There are three pillars of reform for the coming months: completing a robust euro area; building a coherent EU foreign policy; and harnessing the single market’s potential to deliver strong and inclusive growth.

By: Agnès Bénassy-Quéré, Michael Hüther, Philippe Martin and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: August 12, 2017
Read article More on this topic More by this author

Blog Post

Eurozone or EU budget? Confronting a complex political question

This week’s European Commission reflection paper is the latest document to ponder a distinction between EU and euro-area budgets. But do we need to split the two, and what would each budget be used for? In this post, I present an analytical framework for assessing this ultimately political question

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 29, 2017
Load more posts