Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey : Is Europe on the Mend?

September 25, 2013

  • Economic situation in Europe stabilizing, but still fragile
  • Banking union, enhanced demand support and structural measures critical for recovery
  • Concerted policy efforts needed at pan European and national levels

A video presentation by Reza Moghadam, Director of the IMF’s European Department, highlights the need to keep up the reform momentum, especially when the first glimmers of growth for the euro area are appearing.

Reza Moghadam, Director of the IMF’s European Department: Some signs of growth in Europe (IMF photo)

Reza Moghadam, Director of the IMF’s European Department: Some signs of growth in Europe (IMF photo)

EUROPE UPDATE

After nearly two years of sagging indicators and financial flare-ups, data suggest that the economic situation is finally stabilizing—not just in a few countries but across the euro area. What will it take to go from stabilization to genuine recovery?

This video presentation by Reza Moghadam, the IMF’s European Department Director—argues that formidable headwinds persist and will require further efforts at the national and euro area levels before the crisis is safely in the rear-view mirror.

Among the most pressing issues are:

• Continued financial fragmentation (i.e., contraction in cross-border lending and high borrowing costs in some places despite low official rates) has made credit more expensive in the hardest hit economies, especially for smaller firms.

• By historical standards, public and private balance sheets have barely begun to recover. Still-high debt levels force households and firms to cut spending, prolonging the underlying hit to demand, on top of ongoing fiscal adjustment by governments.

• Structural rigidities, especially in labor markets, are weighing on employment, confidence, and investment, holding back a strong jobs response to improving conditions.

Progress is complicated by historically high levels of unemployment, especially among the youth, and low growth and inflation that make it harder to eliminate over-indebtedness. These factors also make it harder to mobilize the political consensus for reforms.

Persevering with banking union, enhanced demand support, and structural measures would help reduce uncertainty and boost prospects for a more rapid recovery. Indeed, it is critical that reform momentum not flag when the first glimmers of growth for the euro area are appearing.

For an extended presentation see http://0-www-imf-org.library.svsu.edu/external/mmedia/view.aspx?vid=2693791836001.