Economic growth in Europe has grown stagnant, the Financial Times claims in an article.
As its authors note, despite the €800bn stimulus program deployed throughout the bloc, economic growth in the EU has stagnated, and a dozen countries even featured declined gross domestic product (GDP) in 2023. And this not only refers to "outsiders" like Poland, Lithuania, Latvia and Estonia, but the powerhouse as well as the German economy shrank by 0.3%. The number of bankruptcies increased. Thus, a record number of shutdown private companies was registered in France — 55.500, the highest since 2017. The Finnish authorities also reported a record-breaking number of bankruptcies over the past 25 years (3,293 enterprises). Even in prosperous Sweden their level soared by 29%.
The total debt of the European Union has amounted to $13.7 trillion, with its ratio to GDP exceeding 83%. The budget deficit increased to 3.2%.
Over a number of years, the European industry growth engine has been the ECB's "ultra-soft" policy coupled with cheap energy from Russia. Economic practice has shown that the absence of at least one of these components causes a serious blow to the competitiveness of key EU industries. To maintain it, many of Europe’s major corporations have decided to move their production facilities to the New World, and a number of them have already done so.
The Ukraine expenses have been also hurting the EU economy. Since February 2022, the European Union has spent over $90bn on its direct support. Large-scale assistance gave full play to EU funds to deplete the entire long-term development budget for 2021-2027. Apart from direct costs, EU countries were forced to bear additional ones after imposing anti-Russian sanctions, namely for the purchase of energy resources from non-Russian suppliers. Now, according to Eurostat, they spend a monthly €15.2bn on gas imports, while the pre-sanctions level was almost thrice lower to account for some €5.9bn. As a result, gas alone has consumed €185bn overpaid by Europe over the two years of sanctions. And its overall losses incited by the breakdown with Russia have been estimated at $1.5 trillion. To support consumers, the EU was forced to introduce €600bn subsidies to save separate industries but bot the entire disastrous economy.
Results of the kind should have seemingly made the European Commission face the urgent need of giving a boost to its stagnating economy and declining global competitiveness. But EC leaders keep prioritizing politics over economy. In their opinion, one of EU’s key tasks for 2024 is to prepare Ukraine for further hostilities with the Russian Federation. The EU foreign ministers, who gathered in Brussels for a meeting of the European Council at year-end, sought to demonstrate that their determination to resist Moscow is not going to be affected by either Israel’s war against HAMAS, or the US debate on the eligibility for cutting aid to Kiev, or Hungary's objection. So, Europe is not about to change its strategy so far. To European officials, Kiev's defeat is too high a price, since they deem Russian clout on the continent as a gamechanger for Europe’s security architecture as Brussels wants it to look like.
And EC officials are searching for ways to satisfy their political ambitions. As Financial Times reported, in order to circumvent Hungary’s veto which did not let EU leaders agree a proposed €50bn four-year package for Ukraine, they are working on a back-up plan worth up to €20bn for Ukraine to borrow the sum on capital markets. Such a mechanism does not require consent from every single member state. Berlin would bear most of the debt burden, with some other countries also forced to join in. But, as a result, Brussels may swiftly become a major debt market borrower. With its current debt standing at €450bn (nine times higher than in 2020), it may well reach €900bn by late 2026.
Still, the number of those dissatisfied with "endless" financial and military support to Kiev has been on the rise lately, as clearly evidenced by the reaction of a number of European countries to Brussels' request for additional €86bn stipulating support for Ukraine. They were rather half-hearted about the idea, as their budgets have been suffering severe economic challenges, Politico writes, referring to a couple of European diplomats. Many countries want the EC to review the budget increase plan for 2024 to 2027 and reduce it by €13bn, and this debate will test EU’s Ukraine resolve.
Currently, Berlin allocates half of the bloc’s total financial assistance to Ukraine and does not intend to abandon the course despite economic problems. As German Finance Minister Christian Lindner stated, "the German leadership assumes responsibility because it understands what is at stake." Meanwhile, Germany has been experiencing "a frightening decline in all the spheres of public life," as reported by Frankfurter Allgemeine Zeitung. The infrastructure is falling apart, while the financial situation of the communes deteriorates. The country needs investment, but is hardly able to ensure it. Neither does it have enough skilled labor. And given that the EC is now considering a possible accession of many troubled countries wishing to join the Union, the EU economy will get poorer and poorer, and those with most successful economies, such as Germany, will experience one crisis after another over Ukraine or climate change policies, as many European experts believe.
According to Gunnar Beck, a member of the European Parliament from Germany, if Germany can no longer subsidize the entire bloc in the end, a number of states may consider abandoning it like United Kingdom. He sees Denmark as the most obvious candidate as it no longer engages in the Union’s suicidal steps, such as the common asylum policy — the euro and the Schengen zone. Under circumstances of the kind, it will be relatively easy for Denmark to quit, the politician stressed, naming Sweden as another likely candidate. "I think the countries of Southern Europe are heavily subsidized, so I can't imagine them leaving the EU. Eastern European countries have been also benefiting from the EU at the moment, and I don't think they may be contemplating ‘divorce’. The retention of many countries in the EU still lies in their benefits from the EU, for which read German money." In his opinion, the European Union will endure as long as Germany remains able to pay or borrow to pay.
