Europhiles, central bankers and policy strategists voiced their worries about the state of the eurozone during a small gathering at Lake Como, Italy. The experts are worried the European economic area is too weak and without the right defences to face another slowdown and may never recover if another recession hit the bloc. Adam Posen, president of the Peterson Institute in Washington and a former rate-setter for the Bank of England, spoke candidly of his fears.
He told the Daily Telegraph after the ‘euro Davos’ meeting: “Of all the things that keep me awake at night it is if the US and Europe both go into recession.
“It normally takes 400 to 500 basis points of rate cuts (in the US) to fight off recession.
“There is very little that central banks are going to be able to do at this point.
“They may have to get radical but that will happen only if things get really bad.”
Mr Posen is scared the eurozone would not survive a “secular stagnation”, a condition of no economic growth.
He said: “If we get that kind of problem it could be very serious.
“I would like to think the eurozone can survive but I can’t say that for sure.”
The European economy is facing a series of difficulties, including a slowdown of China following its economic conflict with Washington, a slump of the bloc’s manufacturing, fears Donald Trump may decide to escalate its trade war and heavily tax German cars imported in the US and the uncertainties surrounding Brexit.
Professor Clemens Fuest, head of Germany’s IFO Institute, said there is a lack of trust in the future of the EU’s economy.
He told the Daily Telegraph: “There is a fundamental shift towards pessimism.
“People think the future is very bad.”
European manufacturing has declined over recent months, he added, with new orders in Germany dipping by 8.4 percent when compared to a year before.
He added: “We may get a soft landing but that is only if there is no hard Brexit, no US car tariffs, China stabilises, and there is no crisis in Italy.”
And what worries economists and bankers the most is that the bloc seems powerless against what seems an economic crash in the making.
Heiner Flashback, Germany’s former economic secretary, said the European Central Bank (ECB) has “banned the one instrument” which could help growth, a co-ordinated massive fiscal stimulus.
He continued: “Germany is going into recession and the eurozone will follow at a time when unemployment is still extremely high in parts of Europe.
“We have to change our own rules drastically.”