Why Europe needs to keep on running
On the face of it, yesterday’s World Economic Outlook report from the International Monetary Fund reflected in many ways the more encouraging sentiment that has crept into the financial markets since the turn of the year, with UK and World economic growth forecasts raised, recognition that the crisis is “passing” and that “some optimism has returned”.
However, it is no surprise that concerns over the Eurozone’s future were a prominent feature and, whilst the ECB was given credit for the work it has done so far to strengthen the region’s banking systems, the IMF gave a clear warning that it sees much still to be done to avoid the very real risk of a Eurozone break up.
With fears about the health of Spain and now Portugal’s economies continuing to hit the headlines it goes without saying that, even if the immediate sense of crisis can be felt to have dwindled, UK companies and investors can ill afford to take their eye off what is happening in Europe for a moment.
In an insightful article in this morning’s FT, Martin Wolf does a far better job than I ever could at drawing out the complex range of economic and political and forces that simultaneously hold the Eurozone together and threaten to pull it apart. He compares the Eurozone’s financial improvisations to an aircraft “being re-designed whilst crashing”, but his conclusion is that, despite being a “miserable marriage”, the Eurozone is far more than a marriage of convenience, and it can endure.
With the London Marathon just around the corner, all these analogies got me thinking of Europe as an injured runner struggling to go the distance without falling apart.
With Ireland as the dodgy knee, Italy as the gammy hip, Spain and Portugal as the busted toe and swollen ankle, even the one good leg that is Germany is inevitably feeling the strain of an imbalanced body that is just not functioning properly. The fiscal machinations implemented to date have been no more effective than a quick rub-down and some supportive strapping applied by the roadside, but, as for the sponsored marathon runner, there is a large weight of money and expectation riding on poor old Europe’s shoulders to keep limping along.
Unfortunately, unlike all those lucky runners pounding the streets of London this Sunday, there is no clear finish line or shiny medal in sight, just a certainty that the stakes are infinitely higher and the road infinitely longer. Much as the IMF might stress the dire consequences of any nation defaulting and dropping out of the race, it’s probably going to keep on hurting until one of them does.