Cause and Effect in European Politics and Law

Cloudy over some parts of the uurozone, with thunder strikes

Dessislava Dimitrova, May 17, 2011

Murky forecasts, negative expectations, warnings that the bailouts are not helping – such were the main headlines following the spring economic forecasts the European Commission published on May 13. The only optimistic comment that I saw after the publication was in fact quite ironic. “The Greek economy grew faster than the UK in the first quarter of 2011. Does this mean we win the Austerity Champions League final?”said Nick Malkoutzis, deputy editor of the Kathimerini daily.

In fact, he is right – according to Eurostat's latest data, the Greek economy expanded by 0.8% in the first quarter of the year, while the economic growth in Great Britain was 0.5%. However, those are the figures for the annual growth. Compared to the previous quarter, Great Britain has grown by 1.8%, while Greek economy has shrunk by almost 5.0%. Unfortunately, Eurostat did not provide data for Ireland, but the figures show quite clearly that the other economy that has shrunk, both in the quarter and on an yearly basis, was Portugal. And according to the forecasts, the economies of Greece and Portugal will continue to shrink.

The good news is that it is expected the economies of Latvia, Romania, Bulgaria and Ireland to exit the recession this year. As whole, recovery across the EU is expected to be uneven and the economic growth to reach 1.7% this year and 2.0% in 2012. According to the forecast, some countries will continue to recover faster than others, just like Germany and some other export-oriented countries surprised with a solid growth in the first quarter.

Some days before EU’ forecasts have been released, the IMF, for which the number of patients waiting for bailouts have been growing recently, also has released its expectations. Although a bit more optimistic in terms of economic growth in Europe in 2010 and 2011 than the Commission - 2.4% and 2.6%, respectively - the IMF warns that the main growth risk is the anticipated increase of sovereign debt in some of the eurozone countries.

"Greece, Ireland and Portugal had to count on financial bailouts from the EU and the IMF. In the short run, the forecast for those countries are quite negative, but thanks to the financial packages and the measures already taken to soften the situation, growth there will recover", the IMF report reads.

The EU forecasts show quite clearly what is the future of the “patients” – Greece’s debt is expected to reach almost 160% of its projected gross domestic product (GDP) in 2012, Ireland’s debt will climb to some 120% of GDP and that of Portugal – to almost 118% of GDP. At the same time, European Central Bank policymaker Ewald Nowotny warned that Greece had not yet met the conditions of its bailout agreement, signaling that EU leaders should think twice before endorsing another financial help package.

The bailout plan for Portugal was in the agenda of EU finance ministers meeting on May 17. In this murky landscape, some analysts saw some optimism – in the forecasts for Spain’s sovereign debt, which seem to be growing less than previously projected. Which is in line with euinside’s forecast that Spain will not be the next tile of the falling domino game in the eurozone.