Wednesday 17 January 2018

Europe warned it must end reliance on exports

Colm Kelpie

Colm Kelpie

Europe will need to focus more on increasing domestic demand and rely less on the "rest of the world" to boost economic growth in the wake of the election of Donald Trump, a senior European Commission official has said.

Marco Buti, Director-General for Economic and Financial Affairs at the Commission, said domestic demand across the EU has still not returned to pre-crisis levels.

He told the Institute of International and European Affairs (IIEA) that the continent had been relying too much on exports "to pull up Europe".

Amid fears about a slide into protectionism with the election of Mr Trump, Mr Buti said policy makers in Europe need to be conscious of the need to introduce policies that will help foster domestic demand.

"I think the assessment of the desirable policies looking forward will want us to rely much more on domestic demand in Europe, rather than relying on the rest of the world to pull up Europe, because the evolution in the US and with the evolution in China, we may have lost the consumer of last resort in the US and the investor of last resort in China," Mr Buti said.

"So we have to rely much more on what we can do ourselves. So the policy mix that we are thinking about will have to be more favourable to domestic demand."

The comments came as German Chancellor Angela Merkel called for globalisation to be framed in multilateral agreements rather than see countries adopt protectionist measures, in a thinly-veiled warning to the US President-elect.

In his campaign, Mr Trump argued that international trade agreements had hurt US workers and the country's competitiveness. He has promised to "get tough" with China and withdraw from the 12-nation Trans-Pacific Partnership, or TPP, which is still not finalised.

The German think-tank the IFO Institute said yesterday that any trade war waged by the US would backfire on the country, and would have a significant negative impact.

Meanwhile, Mr Buti also noted that Governments should use periods of economic growth to reduce debt. He said policy mistakes in Europe were not necessarily made in the crisis years, but in the good times when member states didn't do enough to protect their economies from a crash.

"Not having created the room for manoeuvre by decisively reducing public debt was the problem that then came to haunt us during the crisis, when we didn't have the safety margin to use fiscal policy in a more proactive manner," Mr Buti said.

Irish Independent

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