Sick men of Europe: EU countries face economic crisis
In the footsteps of Italy, Greece, France, and Germany, the Czech Republic now occupies the media spotlight as an economy in distress, according to Die Welt. This Central European nation is the sole EU member yet to recover from the economic nosedive induced by the Covid-19 pandemic. The Berlin-based newspaper attributes part of the blame to the energy inefficiency of Czech firms, which were severely hit by the energy crisis following Russia’s invasion of Ukraine. Yet the woes of this most industrialised EU nation appear to run deeper, necessitating a shift from its growth model rooted in a skilled workforce and low labour costs.
“This model hit its limits when prosperity and wages levelled with Western Europe, erasing a key competitive advantage,” the paper writes, adding that “the Czech economy is too costly to compete with lower-wage countries, but it is not yet technologically advanced enough to keep pace with, say, Germany”. The Czech scenario, however, is also a warning for Germany itself, which faces similar issues. To maintain prosperity, structural changes are needed, including an end to subsidies for industries that are not sustainable in the long term, increased investment in education, research and development, bureaucracy reduction, and investment in machinery, robots, and software to replace the dwindling workforce.
The gloomy prognosis of Europe’s strongest economy, whose growth is second to last in the EU after Czech Republic, is shared by Der Spiegel. Hamburg-based daily attributes Germany’s economic stagnation to the sharp rise in energy prices due to Russia‘s invasion of Ukraine, the corresponding overall price increase, geopolitical uncertainty, and a pronounced slowdown in the global economy.
According to the Berlin newspaper Tagesspiegel, the ageing population is also a problem: “fewer and fewer employees have to finance more and more pensioners”, while the solution of immigration of skilled workers is hindered by the growing electoral preference for extreme right-wing populists. Germany thus faces the potential loss of its prosperity model, which could lead to “not a short-term panic, but a total societal collapse.”
In neighbouring Austria, Der Standard quotes former Social Democratic Chancellor Christian Kern, who reminds us that “Germany’s problem is Europe’s problem” and labels “Germany as a locomotive that must not break down”.
Meanwhile, the recession is starting to impact the labour market in Austria, where nearly a quarter of a million people are seeking employment, an 11% increase from the previous year. Employment growth is only observable in the public sector, the paper notes.
Optimism is scarcely discernible even at the other end of Europe. “Over 80% of Portuguese fear their living standards will deteriorate in 2024,” headlines Público, arguing that social issues and the fight against poverty will become a topic of the upcoming European Parliament elections. Despite Portugal being among the European growth leaders with a 1.5% increase, and even recording the fastest growth last year, as reported by Jornal de Negócios, economic apprehension remains high.
On the same topic
The United States charges ahead, while Europe lags behind. This is the headline from Hospodářské noviny, citing a study by the Brussels-based ECIPE research institute. The study suggests that if EU member states were to relocate across the Atlantic and integrate into the United States, they would rank among the poorest in terms of GDP per capita—even heavyweights like Germany and France are included. Since the global financial crisis of 2008-2009, America’s growth rate has significantly outpaced the EU average. “If the trend continues, the prosperity gap between the average European and American in 2035 will be as big as between the average European and Indian today”, as per the study’s shocking comparison. Europe’s lag is multifaceted: short-term factors include distinct impacts of Russian aggression on European and American economies.
A more enduring reason is America’s lead in innovative tech firms, a sphere where Europe lacks equivalents. The approaches to green transformation also vary. The Biden administration has backed this shift with significant tax breaks. The EU’s support for the green transformation is strong, but a unified tax system’s absence hinders joint tax relief, considered the most effective tool. Europe’s underdeveloped capital market complicates funding for new businesses.
The European Commission proposed a unified capital market in the EU in 2014 to facilitate corporate financing, but this proposal has not been accepted yet. Another challenge for EU states is an ageing population. In contrast, the United States continues to see a rise in the productive-age population available in the labour market. Many companies, including those in the Czech Republic, struggle to find employees in Europe. Productivity growth is significantly faster in the US than in the EU, due to higher investment rates, a larger share of R&D spending, and substantially lower energy prices that American businesses have to pay.
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Italy bows out of the Silk Road
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“Italy exits the Silk Road: Farewell letter delivered to Beijing,” headlines Corriere della Sera. According to the Milan-based daily, Rome has exited the “pharaonic and multi-billion project of Chinese leader Xi Jinping after four years, an initiative that seduced the Giuseppe Conte government and angered America and other allies”. The Italian government had previously hesitated over the withdrawal, keen to maintain cordial relations with Beijing. China criticised Italy’s decision to exit the initiative but stopped short of naming the country directly. Italy’s experience illuminates how the project is primarily beneficial for Beijing, with limited tangible advantages for other parties. Within the framework of cooperation, up to €20 billion of Chinese investments were expected to flow into Italy, but only a fraction arrived. The newspaper raises the question of potential commercial retaliation from Beijing, particularly concerning the luxury goods sector. The possible impacts will become measurable in the coming months.
Caretaker government to lead Portugal to early elections
Vítor Moita Cordeiro | Diário de Notícias | December 7 | PT
On December 8th, Portugal’s interim government took office under the leadership of outgoing socialist Prime Minister António Costa, who had resigned precisely a month earlier due to a corruption investigation. Diário de Notícias points out that although Costa remains the formal head of government, it can only conduct actions “strictly necessary for the handling of public affairs,” steering the country towards early elections set for March 10, 2024. Costa is under investigation for possible corruption related to granting permits for lithium mining and the production of so-called green hydrogen. The Attorney General’s Office has already charged Infrastructure Minister João Galamba, and police have searched Costa’s official residence, several ministries, and detained several individuals close to the Prime Minister. Costa, who has governed Portugal since 2015 and was the longest-serving incumbent European Prime Minister, managed to attract investments and restore the country’s fiscal stability after years of austerity measures that were implemented in response to the European debt crisis.
