Ursula Von der Leyen dealt with bleak warning over eurozone future
Ursula Von der Leyen, President of the European Commission, is facing a stark warning over the future of the eurozone as the Business Europe lobby urged EU leaders to prioritise competitiveness. The call came amidst a meeting of EU finance ministers who demanded a shift away from five years of increasing state intervention in the economy, resulting in a significant surge in public expenditure.
They said: “Europe’s declining attractiveness for investment needs to be addressed. Having a strong economy is necessary to defend our European way of life and European interests abroad.”
The International Monetary Fund (IMF) echoed concerns on Wednesday, emphasising the need for the European Central Bank and other policymakers to maintain current elevated interest rates until inflation is firmly under control.
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The IMF warned against premature celebration, cautioning that underestimating inflation’s persistence could lead to another round of rate hikes, potentially stripping the economy of substantial growth.
The IMF’s twice-yearly regional economic outlook for Europe highlighted that central banks outside the 20-country Eurozone were reaching the peak of their interest rate cycles, with some already reducing policy rates.
Despite signs of inflation decline from its peak of 10.6 percent in October 2022 to 2.9 percent in October 2023, the IMF stressed the necessity of a prolonged restrictive stance to ensure a return to target levels.
Alfred Kammer, Director of the IMF’s Europe department, warned against “premature celebration”, emphasising that it is less costly to be too tight than too loose with interest-rate policy. While acknowledging the European Central Bank’s recent pause in rate increases, Kammer urged vigilance.
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In the midst of these economic concerns, European Central Bank President Christine Lagarde expressed additional worries about the Israel-Hamas conflict’s potential to amplify economic struggles across Europe.
Lagarde noted that the conflict might lead to reduced confidence among firms and households, fostering greater uncertainty about the future and potentially dampening growth.
She said: “This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further.”
Marco Valli, Chief European Economist at UniCredit, also shared a cautious outlook, stating that the recovery from the economic downturn is expected to be slow. When asked about the prospects for the euro in the coming year, Valli told CNBC “No, absolutely not,” indicating a challenging path ahead for the eurozone.
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