Europe: Still looking for a second wind

The start to the year has been harsh in Europe. Winter has not wanted

to give way to spring, as agreed, and the only positive from this chill is

perhaps its contribution to eurozone growth: nearly one-tenth of a

percentage point of GDP in 2013, according to our estimates. That's

already something, isn't it? Economists love using climate metaphors to

describe their forecasts: "chill in consumption", "investors get cold feet",

"clear skies ahead for the global economy", "headwinds", "clouds

overhanging the West", etc. Myriad are the parallels between economic

and meteorological hazards, so much have economies been navigating

by sight of late. In 2010 the seasonal lexicon appeared with the oftmentioned

"Arab Spring", which, it has to be said, subsequently turned

into winter, summer, fall, and then spring once again. In fact, it seems

that seasonal changes arise as rapidly as new policies for the

Mediterranean periphery. In this economic outlook we provide our own

contribution to this much-vaunted literature by building on the idea of a

"European Winter" in light of the bad winds that continue to batter Europe

without respite. There is a chill in consumption, investment is shaky,

public spending is frozen, trade is bogged down, business lending has

dried-up and governance is numb: the European crisis blizzard carries

on. We thought we could see the first signs of spring, with the financial

markets showing some green shoots, Frankfurt appearing to soften up �

and then the snowstorm arrived (from Cyprus!), freezing over confidence

and institutions in its path. The good news is that, while the eurozone

remains in winter, the United States is in spring (a little wet, perhaps, but

pleasant) meanwhile in large � and less large � emerging countries such

as Brazil, Russia, India, China, Turkey, Mexico, and Indonesia, to name just

a few, temperatures are warming� although without thawing the core.

Any solutions? Europe needs to turn on the heater! So the metaphor is

clear: expansionary monetary policy (OMT), joint fiscal and industrial

policy, banking union, debt restructuring, and efficient use of new tools

such as the EFSF and the ESM, among others. The time has come, we can

wait no more. Even global warming may no longer be such a faithful ally,

what with recent studies showing it may have even slowed. Does this

mean climate change skeptics and euroskeptics are waging the same

war? Whatever, roll on springtime� 2014!

Ludovic Subran