Germany

Please see below selected recent intelligence about Europe. This is a synthesis of major recent developments at competitors, business schools, thinktanks, media, commentators, and other key influencers.

May 2016

• Eurozone GDP is now predicted to expand 1.6% this year, less than the 1.7% growth of 2015, while consumer prices are seen up 0.2%, below the 0.5% increase projected in February.

• The European Central Bank warned that the rise of populist parties in Europe could slow the pace of economic reforms. Populists on the left and right ends of the political spectrum have made gains in elections by running against spending cuts. Another big concern of the ECB is the potential risk posed by the vote in Britain on whether to leave the European Union, which will be held on June 23rd.

• Yet many eurozone capitals firmly believe that a return to a 2010-style debt crisis, where developments in Greece resulted in “contagion” to other Euro area members, is no longer possible, or indeed likely. Eurasia Group disagrees. If anything, it thinks the euro area is more politically vulnerable today to a change in investor sentiment than at any time since its creation. This is due to three factors. First, multiple negative political developments in Southern Europe; second, deteriorating relations between the ECB and Berlin; and third, a whole host of potential events, not least BREXIT or an inability to agree to a deal over Greece, that could serve as potential triggers for a change in market sentiment.

• Greece badly needs the next tranche of the €86 billion bail-out creditors promised it last summer, in exchange for promises of austerity and reform, warned The Economist. But it will not get the money until the creditors complete a review of its progress, which has been dragging on since October. The government has scraped together enough cash (by raiding independent public agencies) to pay salaries and pensions in May, perhaps even in June. But by July 20th, when a bond worth over €2 billion matures, the country once again faces default and perhaps a forced exit from the eurozone.