The economic outlook is mostly positive for Europe in 2016—but the current increase in migrants arriving in Europe has threatened the political consensus that has mostly held sway on the continent since World War II, said experts speaking at the ULI Europe conference in Paris.
The opening panel of the annual conference, focusing on the global geopolitical and economic outlook, saw France 24 U.K. correspondent Bénédicte Paviot interview author and former diplomatic editor and foreign correspondent for Sky News Tim Marshall, and Allianz chief economist Michael Heise.
Panelists tackled the current volatility and uncertainty caused by, among other factors, the historically high numbers of migrants arriving in Europe due to conflict in the Middle East, China’s economic slowdown, and the crash in oil prices.
Marshall was forthright in highlighting the cracks that migration is creating in the European project, and predicted no immediate end to the current situation and further unrest both within and between countries in Europe.
“The average civil war lasts 13 years, and Syria is six years in, so that is unlikely to end anytime soon,” Marshall said. “You are seeing a drift to the right and the return of the nation-state. There will be no slowdown in the flow of migrants to Europe in 2016, and water finds its own level. If the route through Greece is closed off, then people will look to the route through Italy. And if that is closed off, they will head east to places like Bulgaria or the Balkans.
“And it is in the Balkans, which has doesn’t have the same social infrastructure, where you could see flashpoints. What happens if you have a refugee camp of 250,000 people spring up on the edge of the E.U., unrest breaks out, and people try to force their way through?
“The Schengen Agreement is under severe threat, and the idea of an ever-closer union will be confined to history, and we’ll return to a situation much more like the European Economic Community. It is the largest challenge of modern times. The current prosperity, low murder rate, and stability in Europe is a relative blip—we’ve had 70 years of peace in the middle of 2,000 years of fighting each other.”
From an economic point of view, Heise was far more positive, pointing to a trio of factors that were proving highly beneficial for Europe.
“We all know the year started very badly for financial markets, and that there is turbulence in the Middle East and Europe, China has devalued its currency against the dollar, and there have been outflows of capital from emerging markets.
“The oil price has declined, and normally that is seen as a boon for stock markets, but this time it is being seen as bad, but I think that is just wrong.
“You have symmetry across the world in monetary policy and that is not good, but I think you will have decent economic growth and decent growth in stock markets, and the driver will be the oil price. In the vast majority of countries, that is a huge boost in purchasing power for private consumers and corporates. For oil-producing countries, it’s bad; but in most countries it boosts demand, and for Europe, as a net importer of oil, it is particularly good.
“The second important factor is the low level of the euro, which is really helping imports around the globe and increase market share for Europe.
“Thirdly is reform, and I think that is hugely important. Peripheral countries like Ireland and Spain have undertaken huge reforms and are now much more competitive—wages are down but growing again and debt is down, and their economies are among the fastest growing in Europe—5 percent last year for Ireland and 3 percent for Spain.
“The large players like France and Italy are slowly but surely embarking on a course of reform—a lot in Italy gets stuck in parliament, but it is coming through, and France is now giving tax advantages to companies that create jobs.”
He added that he predicted that Eurozone gross domestic product (GDP) growth would be 1.8 percent in 2016, with Germany above 2 percent.
Marshall also warned the 500-plus delegates in the Westin Hotel that the possibility of a British exit from the E.U. was closer than they thought, on a morning when the British press was highly critical of U.K. Prime Minister David Cameron’s attempts to renegotiate the terms of the country’s relationship with the union.
“What you have to remember is that the campaign to leave isn’t aimed at you, the people in this room,” he said. “I think the prospects are 50/50. One side will be putting forward an emotional argument, and the other side will be having a boring debate based on facts. You have to look at the fact that the Scots almost left the United Kingdom, even though the economic case for leaving was clearly very weak. The campaign to stay in needs to get someone else in to make their campaign more emotional.”
