European election results could hinder much-needed reforms

Political uncertainty and instability will make businesses less likely to invest, Cebr warns

The new-found strength of anti-Europe groups in the European Parliament will act as a stumbling block in the process of European reform, the Centre for Economics and Business Research (Cebr) has warned.

Anti-euro and anti-orthodox parties now account for at least a third of seats in the European Parliament. This will make the task of protecting the currency union harder, according to the think tank.

Meanwhile, Cebr outlined the further challenges that face the eurozone economies over the coming year, noting that different economies are in very different stages of recovery, which will make policymaking harder.

Cebr expects that for 2014 as a whole, the economy of Spain will remain 6% smaller in real terms than it was in 2008, while the economy of Greece will be 23.3% smaller than it was six years previously. Despite a tentative return to growth, the Irish economy is expected to remain 3.9% smaller than it was in 2008, while the Portuguese economy will still be 5.8% below its 2008 peak size. Furthermore, recovery is not just around the corner for each of these economies – they will suffer from high unemployment, continued austerity and reform fatigue – for years to come.

But Cebr believes that that German output will be 5% higher in real terms by the end of 2014 than in 2008. Other economies, including Italy and France, have managed to secure some economic growth over the past six years, but face substantial structural challenges ahead, and are likely to see slow, bumpy recoveries.

Danae Kyriakopoulou, Cebr economist, said: “Despite recent improvements, Europe's crisis has exposed the need for further integration in order to secure the future of the currency area. May's elections, however, have highlighted a harsh contrast between this economic need for such integration reforms and the electorate's lack of appetite for it. This is a serious downside risk for Europe's economic prospects. Political uncertainty and instability will make businesses less likely to invest, and the lack of cohesion on the political stage will provide a big challenge to the push of much-needed reforms.”

About the author

Sally Percy is editor of The Treasurer

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