REPOST: How to Build on Europe’s Economic Recovery

Strengthening engines of growth, building a more collaborative working relationship between countries, and developing more concrete collective responses to outstanding challenges are some of the possible ways to increase Europe’s economic resilience and agility. More insights from Bloomberg:

Relationship status: It’s complicated. Photographer: Jasper Juinen/Bloomberg

After years of crisis management, heightened self-doubt and even existential threats, Europe is in a much better place. Economic growth is picking up, political uncertainty has diminished, and despite (if not partially because of) Brexit, the vision of an “ever-closer” regional union is energizing some new constructive thinking in core countries. Translating this into sustainable prosperity, however, is far from automatic, and that pivot will be problematic without progress in four key areas.

The latest set of robust high-frequency numbers shows that Europe’s economy is growing at a much healthier 2 percent to 2.5 percent annual pace, with many more of its member states sharing in the growing expansion. Although youth joblessness remains an acute problem in several economies, the overall unemployment rate is coming down. And, with ample liquidity, European financial markets have been performing well, both in absolute terms and relative to others.

The endogenous economic and financial healing is opening the way for reducing the prolonged reliance on the unconventional monetary policy measures being implemented by the European Central Bank. The ECB can start thinking seriously about an exit plan for both negative interest rates and its program of large-scale purchases of securities, though it will be very gradual, which will also help to reduce a high risk of greater political challenge to its institutional independence.

France and Germany have had their key elections, and there is now hope for a constructive regional political runway anchored by a strengthened collective vision and coordinated action by the two countries. Even though German Chancellor Angela Merkel encountered some domestic political turbulence over the weekend, the relationship between her and President Emmanuel Macron of France combines new energy with deep experience and credibility, raising hopes for progress on some long-delayed elements of the European project.

The internal push for reforms is amplified by several pressure points.

The U.K.’s vote in favor of Brexit has provided an impulse for greater coordination among the other 27 members of the European Union. Since the highly uncertain days immediately the referendum, the remaining countries of the union have developed — rightly — much greater confidence in their ability to move forward without the U.K., especially now that the economic performance gap has swung against Britain and is widening.

Brexit has amplified other external pressures on the effective functioning of the EU. These include the common challenge of migration, Russia’s annexation of Crimea, uncertainties about common defense, and grumblings by some of the eastern members.

All of this places the historical European project in a different place, and not just in terms of the situation on the ground. A reactive crisis management and prevention mindset is giving way to a more confident proactive and strategic one that seeks to achieve common prosperity.

Continue reading HERE.