With all the recent political tension and economic uncertainty swirling around Brexit and the arrival of a new Tory Prime Minister, it is perhaps only natural that we Brits have become obsessed with our own ills. Perhaps it is time to remind ourselves of what’s going on elsewhere.
For example, we were informed on the last day of July that the Eurozone economy grew by just 0.2% in the second quarter of 2019, down from + 0.4% in the Q1. Manufacturers in particular are said to be under pressure from widespread political unrest and a downturn in world trade. Even Germany, the acknowledged powerhouse of the EU, is said by experts to be on the verge of recession with its manufacturing sector hitting a seven-year low.
The trends have prompted the European Central Bank (ECB) under the stewardship of Mario Draghi to draw up plans to reflate the economy by cutting interest rates and buying Eurozone bonds. Precise details of the rescue package are scheduled to be announced on September 12.
That’s the good news. The bad news is that the EU’s third largest economy, Italy, is on the ’critical’ list having emerged from its third recession in a decade. Again, the main weakness has been the manufacturing sector; operating conditions deteriorated in June for the ninth consecutive month.
With Italian domestic politics contributing to the instability, one senior economist has been quoted as saying: “The outlook for full-year growth is now beyond rescue”. IMF forecasters are predicting that Italy’s output in 2024 will still be lower than in 2007, marking 17 years of stagnation.
The problem is, because it is signed up to the Euro, Italy is denied the traditional escape route of being able to devalue. If it defaults on its loans and is unable to borrow even to pay the interest, the situation will pose a far greater threat to the EU than the bail-out of Greece a few years ago. If Germany is either unable or unwilling to foot the bill, then it could spell curtains for the Euro as a currency: goodbye Euro, welcome back Lira?
All of which goes to prove that we are not alone in looking into the future with some trepidation. Who knows, maybe Boris is right and we should back ourselves to emerge as Brexit winners?