Coming Out of the Slump: Increasing Regulation Without Stifling Growth In Europe

Coming Out of the Slump: Increasing Regulation Without Stifling Growth In Europe: "Coming Out of the Slump: Increasing Regulation Without Stifling Growth In Europe"

The financial crash that shook the world in 2008 was centered in Wall Street, but across the Atlantic, Europe has borne a significant chunk of the fallout in the form of a deep recession. In fact, Europe has been even slower than Asia and the US in recovery. Estimated growth in 2010 is expected to be slow, and a number of challenges face the European Union in the process of this recovery.
Overall forecasts for Europe in 2010 are just 0.75% and 1.5% for 2011, compared to 2.6% in 2007. Some of the major challenges in recovery are unemployment, the possibility of sovereign debt default, regulatory changes and the significance of Europe in the world’s economic order. 2009 saw modest recovery towards the end, but this was attributed mainly to the stimulus packages across the continent. This is likely to slack off in the coming year.
Unemployment in Europe is likely to remain at 10% levels till 2011, but Europe still has a chance to regain its prominence in the global economy. However, this will require a unified front from all the members of the EU, a perspective the members have been struggling to achieve. Given the rising dominance of China in the global economy, it will be interesting to see how Europe can relate to the changing scenario.
The current recession and its outcomes are also a cause for concern, especially the higher risk of sovereign debt default in the four members known as the PIGS (Portugal, Italy, Spain and Greece) Economic frailty, political instability and a high level of speculative impact are cause for concern in these states. It is likely that one or more of these may temporarily have to exit the EU to get their finances in order under the IMF regime. However, these are also likely to cause a domino effect in the rest of the European states, especially Ireland and the UK.
The specter of debt default will govern the actions of the European Central Bank (ECB) which will have to keep interests low to ensure there are no defaults. This could in turn encourage inflation, and work as a double-edged sword. The global crisis should heighten European nations’ desire to integrate better in order to counter the United States’ economic clout, and may cause regulatory terms to be tightened. This in turn might lead to companies that can relocate to move away from Europe, which is again a no-win situation for the European Union.
The challenge is therefore to regulate the markets to reduce speculative dealing, and yet retain a positive investment atmosphere to encourage business growth. This involves a tightrope walk for Europe and its fiscal managers. Too much control and capital will flee the continent, as it already has in the case of venture capital funds due to unfavorable laws and red tape. The key, experts believe lies in multinationals being able to capture the benefits of global innovation in Europe as they are in other locations across the world. How Europe builds the right atmosphere for this to happen is the key.