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Avoiding a forest fire in the EU

“It is absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole.” So said Ollie Rehn, the EU economic and monetary affairs commissioner at a news conference in Brussels.

From forest fire to deadly disease: Dominique Strauss-Kahn, head of the International Monetary Fund, said in an interview with the newspaper La Parisien: “We have to succeed in avoiding contagion … we should remain vigilant.”

However, the EU has just published its Spring Forecast and there is no sign of fresh life in the Greek economy. In fact, the EU expects a 3% fall in Greek GDP this year, and predicts negative growth for 2011 as well. “What’s a Grecian urn?” asked Eric Morecambe. “About 3 drachmas a week” was the answer. Well, it looks as though our Eric was something of a prophet.

Will Greece slide off the map?

On the broader front, the Commission expects the eurozone countries as a whole to grow by 0.9% this year. Overall they expect Germany and France to grow by about 1.25%, with the UK expected to grow from 1.25% during 2010 to 2.0% in 2011. GDP is expected to contract this year in Cyprus, Ireland, Latvia and Lithuania, as well as Greece, but the other economies are expected to return to growth in 2011. Only Poland within the EU has succeeded in avoiding a recession altogether, and is expected to grow by 2.75% this year and 3.25% next year. No wonder so many temporary Polish immigrants to the UK decided to turn around and go home.

According to the Commission the factors explaining the divergences between EU economies include trade openness, exposure to the financial-sector disturbances and the existence of sizeable internal and external imbalances. They say that member states will grow at different rates, reflecting the individual challenges that each faces. Interestingly enough they note that: “Mounting concerns about fiscal sustainability, especially in some euro-area Member States, which cause increased turbulence in government-bond markets, and differences in competitiveness positions are among the most important challenges in this regard.”

Will Greece be forced out of the euro? Will the eurozone collapse trying to save Greece? The answer is probably ‘no’ on both counts. But it is much more fun being on the outside looking in than being on the inside looking out.

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Posted in European Union, eurozone, GDP

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