When looking at the EU countries which have seen negative growth in real wages over the past few years, the UK is in bad company. According to analysis in the new report 'Benchmarking Working Europe 2018' by the European Trade Union Institute, workers in the UK earned 2.4% less in real terms in 2017 than they did in 2010. This, though, is eclipsed by the devastating 19.1% fall in Greece and just over 10% in Cyprus, while other Eurozone periphery nations (Portugal, Spain) seemed to have fared better.
Recovery has come in the aftermath of a period of stagnating, if not receding, GDP per capita for most of the 2008-2017 period. Eight member states – Greece, Cyprus, Italy, Finland, Croatia, Slovenia, Portugal and Spain – had negative average annual real GDP per capita growth rates between 2008 and 2016.
By far the biggest increases in public debt since 2008 took place in the member states which received financial support (Greece, Portugal, Cyprus, Ireland, Spain, Latvia, Romania) but also in Slovenia.
The biggest concerns that resulted in sluggish growth during the past decade included a clear divergence
between north and south, unbalanced current accounts, convergence in private consumption per head, unclear results from investment support, a softening fiscal stance, continued downward pressures on corporate income taxes and sluggish inflation.
Positive output growth rates have recently returned across the EU, as is the case of Cyprus, and are the strongest among Member States that suffered the greatest GDP per capita losses since 2008, as well as in many of the Member States that joined after 2004.
The ETUI report added that within the entire EU28, divergence in real GDP per head was on a downward trend between 2005 and 2012 but then began to increase. While the still wide gap in real GDP per head between east and west seems to be closing, a gap between north and south persists and in the case of the EU15 southern countries it is continuing to widen.
The rebalancing of current accounts in Europe since 2008, with the burden falling mostly on Member States with deficits, points again to a persistently weak domestic demand, especially in the euro area, where internal devaluation policies have been pursued.
Public debt as a share of GDP has been declining only slowly from previously high levels, while past experience has shown that the most effective way to overcome public debt problems is economic growth, which, under the current circumstances, would be likely to benefit from fiscal policy support.
There has been some convergence in private final consumption expenditure per head between new and older Member States.
Fixed investment remains low, having fallen the most in lower-income countries. Some EU policies have stimulated investment, albeit with unclear longer-term impacts, but the much-publicised Juncker Plan does not add anything to total investment levels. There is therefore a need for more serious funding, greater transparency over decisionmaking, and a better targeting of where investment is most needed.
EU recommendations on fiscal policy have been cautious. A more expansionary fiscal policy stance is needed in Europe to help heal the economic and social scars of the crisis.
There are continuing pressures on national governments to provide more favourable tax treatment for corporate income, not just in terms of tax rates but also with regard to the rules determining what is taxable income, especially with the rise of multinational and internet companies. The EU’s idea for a common consolidated corporate tax base could greatly limit tax avoidance which is costly to public finances. However, it faces opposition and needs to be pursued with vigour.
The inflation rate has been picking up although at a very sluggish rate, despite unprecedented monetary policy expansion measures, pointing to a continuing relative weakness in demand and the need for greater wage increases, investment and support from fiscal policies.
There has been noticeable convergence in levels of greenhouse gas emissions, partly because of changes in economic structures and partly because of policy measures. Both of these factors vary between countries. However, considerably greater efforts will need to be made to reach the 2050 targets.
