41 / 150
41
The current unsustainable euro policy
Quantitative easing is having a diminishing
effect
The moderate pace of economic recuperation in
Europe in 2016 can by and large be attributed
to a single factor: the decision of the European
Central Bank (ECB) to continue implementing
quantitative easing (QE), a transitory policy that
cannot be extended indefinitely and has unfor-
tunately not been accompanied by any substan-
tial effort on the part of national governments
or the European Council to foster economic
growth or job creation. In consequence, the ef-
fectiveness of the euro as a single currency – a
fundamental, but not the only, element of eco-
nomic and monetary union (EMU) – has suf-
fered due to the political paralysis in which the
European Union has been locked since the out-
set of the financial crisis in the summer of 2008.
The current model of growth, imperfect and
unsustainable as it is in the medium to long
term, has produced modest results but impeded
the Union from fine tuning its macroeconomic
policy mix despite of clear signals of its limita-
tions and defects. The EU’s potential for growth
continues to decline; temporary factors other
than monetary policy that have contributed to
the recuperation such as the recent drop in en-
ergy prices in general, the price of oil in particu-
lar and an uptick in exports have been slowly
running their course while the need to stabilise
national budgets has found its way back onto
the political agenda. Implementation of the Sta-
bility and Growth Pact (SGP) will be postponed
to the latter part of 2017 due to elections taking
place in a number of European countries during
the first six months of the year. Additional geo-
political factors such as Donald Trump’s entry
into White House with an unorthodox team of
advisors and an unclear set of new policy objec-
tives and doubts as to the growth prospects of
emerging economies threaten worldwide eco-
nomic growth and raise the general level of
global uncertainty. Any surge in protectionism,
reduction in the volume of international trade or
heightening of trade tensions could neutralise
EU economic policy in 2016.
An incomplete EMU: towards
a fiscal union
José Luis Escario Díaz-Berrio and Juan Moscoso del Prado Hernández