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By Dr. Jim Leontiades
Cyprus International Institute of Management
Now that 2015 is rapidly fading in the rear view mirror, it is time to consider what we may expect in the probable future. The following are some probable possibilities:
Greece: Tsipras loses his current governing majority as more members of his coalition mutiny and balk at enforcing the Eurogroup’s latest austerity programme. New tax measures fail to bring in the expected revenues. A new election is programmed. Political and economic uncertainty prevails. Grexit is once again in the headlines.
The ECB: Senior Draghi will keep the printing presses of the European Central Bank rolling, printing money in an effort to stimulate a sluggish Eurozone growth and inflation through his Quantitative Easing (bond buying) programme. But despite his resolve to “do what it takes”, Eurozone inflation will remain weak and below the ECB’s target of 2%. Germany continues to oppose the demand creating actions required to bring the Eurozone economy out of its high unemployment, slow growth pattern.
The Euro: The euro hits parity with the dollar. Most of the decline of the Eurozone currency has happened but there is still more to come. It is no coincidence that there was marginal improvement in the Eurozone economy about the time Mario Draghi initiated his QE programme. A substantial contribution to this improvement was made by the associated drop in the Euro, aiding European exports.
EU Stability and Growth Pact: France and Italy become increasingly at odds with EU budget rules, challenging Germany’s economic leadership. For 2016, neither country will agree to meet the 3% government deficit target of the EU’s stability and growth pact. The French finance minister hints that the country’s deficit may increase even more following the Paris terrorist attacks. Dissatisfaction with German economic austerity prescriptions increases within the Eurozone.
Global Stagnation: The possibility that the world has entered a period of long term global economic stagnation receives increasing attention. Harvard’s Larry Summers, the most forceful exponent of this view, suggests that the notion that the current slow growth of world economies is “only a temporary consequence of the 2008 financial crisis” is absurd. He states that the world has now entered a new macro economic epoch whose main feature is a glut of saving and deficiency of demand.
European Politics: Parties of the extreme left and right continue to gain ground in European politics.
UK Politics: Jeremy Corbyn, leader of Britain’s Labour Party, is replaced after a long acrimonious internal struggle which comes close to splitting the party.
USA Election: Hilary Clinton wins the Democratic nomination and goes on to win the Presidency.
Refugee crisis: The refugee crisis continues. Europe’s efforts to outsource the migration problem to Turkey fail. Arrangements with Turkey to contain the refugees from flooding into Greece and Italy are unsuccessful. Many thousands of refugees continue to press at Europe’s borders. Poland and Hungary along with other East European countries challenge the official EU position on migration. The EU’s Schengen “free borders” agreements collapse.
China: China’s economy continues to stumble even while growing at a rapid (but reduced) rate. Investment is particularly hard hit. The governing authorities intensify efforts to stimulate local consumer demand. Both exports and imports decline. Stock market volatility increases.
Cyprus Tourism: Cyprus tourism hits a new record, giving the entire economy a welcome boost. Aided by arrivals that have been diverted by terrorism related events from both Turkey and Egypt, the 2001 level of 2,700,000 incoming tourists is surpassed for the first time. The Cyprus Tourist Organisation claims credit for the achievement.
Cyprus Economy: The Cyprus economy continues its slow growth attended by high unemployment. Non-performing loans, higher even than those of Greece, continue to be a major problem, contributing to a shortage of credit and hampering efforts to stimulate the economy. Prodded by the Troika, the Cyprus Parliament has to address the issue yet again, focusing particularly on strategic defaulters. A turtle-fast judicial process contributes to the difficulties.
Labour Disputes: Labour strife increases in Cyprus as the government tackles the privatisation of CYTA and EAC. Political opposition parties intensify their efforts to forward various alternatives in an effort to save these important sources of rusfeti.
