Concerns increase over eurozone growth, Greece and Brexit
Members of the eurozone are facing an economic crisis that may put the currency’s future, along with the future of the European Union as a whole, in question. From admitting over a million refugees and paying out a third Greek bailout to having to deal with a possible Brexit, the public is beginning to worry whether the eurozone can handle the crises on hand.
According to the Organization of Economic Co-operation and Development, the future of the eurozone is a mixed bag. On one hand, the OECD projected a 1.6 percent rise in the eurozone’s GDP, but one may become less optimistic after learning that the current forecast is a result of a 0.4 percent decrease that resulted after the original forecast was published in November.
Of the eight eurozone countries whose statistics were collected, only Ireland saw a decrease in poverty levels. Spain and Greece saw the biggest rise in poverty, equaling roughly 22 percent of the countries’ populations.
On the other hand, statistics on Focus Economics show that 2015 was a year of growth for the eurozone. Its GDP increased to 1.5 percent, up by .6 percent from 2014, while the unemployment rate dropped to 10.9 percent.
The sudden shifts in economic forecasts may be a direct result of the current issues troubling Europe, such as the so-called Brexit, short for the British Exit from the EU. On June 23, Britons will vote in a referendum that will ultimately decide whether the U.K. will stay in or abandon the EU.
The OECD predicts that if the U.K. were to vote for the Brexit, the EU would have to face close to 1 percent decrease from the baseline GDP forecast until 2023.
In comparison, the United Kingdom would face a 3.3 percent decrease from the baseline GDP forecast by 2020. By 2030, the country’s GDP forecast could lose anywhere from 2.8 to 7.8 percent.
Voting to leave the EU would also mean that British lawmakers would have to negotiate new trade treaties in order to re-gain access to the EU’s single market.
According to the Massachusetts Institute of Technology, members of the European Union provide for nearly half of the country’s exports. A new trade agreement would likely mean higher trade costs than what both sides would have to pay if they both belonged in the European Union.
The second issue that the eurozone is facing is the Greek debt crisis.According to the European Commission’s forecasts, Greek GDP will contract by 0.3 percent in 2016 before growing by 2.7 percent in 2017.
For the first time in years, the European Commission also predicts a positive inflation rate of 0.6 percent in 2017. The unemployment rate will also make slow but steady improvements. This is not to say that the third bailout will solve the country’s problems, as the gross public debt in 2017 will still stand at 178.8 percent of GDP.
According to recent polls, unemployment in Greece is now above 30 percent. Disposable income dropped by more than 25 percent. Furthermore, over half of the Greek population believes that matters are only going to worsen, with 61 percent of the population believing in the possibility of a forced withdrawal from the eurozone.
Though the third bailout deal was sealed at 86 billion euros, the country will not witness a quick recovery.
Lastly, the final issue addressed by the European Union is the issue of migrants and refugees entering the EU illegally. Over 1.3 million refugees and migrants filed for asylum in Europe in 2015. Because Greece was not able to screen or register the refugees due to its own economic woes, the flow of migrants and refugees was largely uncontrolled until the beginning of 2016, when borders around the EU were closed.
In March, members of the EU signed a deal with Turkey to control the flow of refugees. The Greek government will now be able to return refugees back to Turkey if the refugees do not file asylum requests or if their requests get rejected. But, for every refugee sent back to Turkey, the Turkish government will be able to send one of its registered refugees to Europe. The EU will also provide Turkey with 3 billion euros to help the refugees.
The costs do not end there. Germany is estimated to spend 50 billion euros on caring for, settling and integrating refugees until the end of 2017. Though other countries will not spend as much, there is great economic strain that will be placed upon the shoulders of the better-performing EU and eurozone countries.
However, the eurozone’s problems should not be considered as purely economic. Underneath the economic woes are hordes of Eurosceptics and nationalistic political parties that oppose the EU. These are the people who, like the pro-Brexit party, believe that the EU blocks member states from fully accessing global markets and limits the members’ sovereignty.
The fate of the EU and the eurozone is hard to predict. On one hand, the eurozone, particularly Germany, has to find a way to sustain roughly a million refugees who crossed the EU’s borders in 2015. The possibility, albeit unforeseeable, that Greece will soon need another eurozone bailout, may lead to more damage for the country that indirectly owns a large fraction of the Greek debt—Germany.
Germany’s performance in the future months should be closely monitored. Being the top performer among the eurozone countries, the currency’s fate lies largely with the country’s economic well-being. If the refugees become too costly or the British decide to leave the European Union, the eurozone will continue to face troubled times.