Gloomy European economy

As the public debt crisis enters its third year and Europe continues to suffer from recession, leaders desperately need to find a solution to the current deadlock. Lack of policy consensus is seen as one of the main obstacles to Europe resuming its growth. 

The Spring report the European Commission released early this month darkened the economic picture of the Eurozone. Negative signs warned of the possibility of a new great recession. The unemployment rate in Europe has reached a record high of 12.1% with Greece and Spain surpassing the record US level in the great recession of the 1930s.

In the healthiest nations in the region, France and Germany's auto sales fell 20% in the first quarter. In the Netherlands, consumer debt increased to 250% of net income. Italy’s industrial production shrank 25% in the last five years and its public debt increased to 136% of GDP.

The business performance of the private sector in the euro zone region has weakened. Another negative sign is the value of bad debts in Europe, which have increased 150% since 2007.

These figures show an economic recession that is ravaging Europe and threatening to spread around the globe. The public is worried about fiscal stimulation policies and their impact. Many blame the worsening recession in the European Union on austerity measures.

EC President Jose Manuel Barroso recently said that public support for austerity measure has reached the limit, especially protests against austerity have been spreading throughout the region. The European Commission has relaxed austerity measures in certain countries by extending the deadline for reducing the budget deficit.

But IMF chief Christine Lagarde says no alternative can replace the austerity measures that are being implemented in Europe. Economic stimulus programs are undesirable solutions as they increase the public debt burden.

At May 22 EU summit in Brussels policies on energy and tax evasion which were proposed to break the current deadlock, failed to win consensus. Germany, Italy, the UK and France agreed with the European Council President Van Rompuy that a mechanism for exchanging banking information is needed by the end of the year to reduce tax evasion, increase regional competitiveness, generate jobs, and ensure growth.

But, Austria and Luxembourg strongly opposed this proposal. Ireland, the EU chair said the EU needs a mandate to allow the Commission to negotiate with third countries amendments to the saving taxation agreements.

Similarly, the UK, Hungary, Poland, Romania, and Spain supported the development of coal energy but others including France opposed it for environmental reasons. This split prompted Lithuanian President Dalia Grybauskaite to beseech the EU to try to reach a consensus.

At the end of the summit, EU leaders could do nothing but call on members to adopt regulations on automatic sharing of information about saving accounts by the end of this year and increase transparency in energy import taxes.

The splits between EU members foiled their plans to create a consensus for solving regional problems. The future of the European economy is gloomy due to weak signs of recovery and an inability to move beyond national self-interest.