Glimmer of hope in Europe’s debt tale
A study by Allianz, the insurer, and another conducted jointly by Berenberg Bank and the Lisbon Council, a think tank, concluded that these and other structural reforms were beginning to bear fruit.
“The bitter medicine that these countries had to take has started to have an effect,” said Michael Heise, chief economist at Allianz. “But the reforms need to continue.”
Both studies rank eurozone countries against each other using several indicators to measure how well they are adjusting and both give high marks to Greece, Spain and Portugal for making significant progress in structural adjustment, with Italy lagging behind in both cases. Ireland scores highly on its adjustment progress in the Berenberg report and less well in Allianz’s assessment.
“By and large, we find a major rebalancing within the eurozone,” the Berenberg study says. “Almost all countries with serious fundamental problems are changing their ways rapidly.”
It adds that its finding “flatly contradicts the occasional assertion that [bailout] support could tempt recipients to slow down their adjustment”.
Competitiveness can be measured in a variety of ways but the most simple one is whether other countries choose to buy a country’s exports. The difference between exports minus imports of goods and services, factor income, such as interest, and transfer payments, is known as the current account.
The current account deficits of Greece, Spain and Portugal have shrunk and Ireland is running a surplus. And while current account and export improvements could simply reflect the domestic collapse in demand, Berenberg and Allianz say the underlying improvements in exports and competitiveness cannot be explained solely by weaker domestic consumption.
Holger Schmieding, Berenberg’s chief economist, goes further. He believes the eurozone could emerge from the crisis in 2014 with the fastest per capita growth among the major western countries, because the others will still face fiscal tightening. But that will come only after the “maximum pain” caused by austerity measures is felt this year and into next.