ECB: Eurozone Recovery Still Fragile

Written by | Wednesday, January 15th, 2014

European Central Bank Executive Board member Yves Mersch said during the unveiling of an oversized 10-euro banknote on Monday (January 13) in Frankfurt, Germany, that the recovery of the currency block is still tentative, delicate, and on wobbly legs. Mr Mersch emphasized that this fact should be Europe’s number one new year’s resolution for 2014.
As part of the speech for the Ifo Institute in Munich, Germany, Mersch also urged those countries which can afford it to invest more in infrastructure to do just that. Although he did specifically mentioned to Germany, it was clear to observers that Mersch’s reproach was addressed to the eurozone’s biggest economy. Berlin was criticized over past decade that it had failed to spend more on infrastructure. Government spending on infrastructure declined to 1.5 percent of GDP from 2 percent in 1999, which is below Europe’s average of 2.5 percent, based on the study of the DIW Economic Institute in Berlin.
Mr Mersch also pointed out the problem of under-financing of small and medium-sized enterprises (SMEs). More specifically, he suggested establishing a framework whose job would be to assess credit risk of SMEs, and emphasized the need for asset-backed securities (ABS) as a proper financing tool for SMEs. In his opinion, robust European securitisation platforms could be a sensible addition to bank-based financing.
The Commission estimates that the eurozone should grow by 1.1 percent this year although it revised the growth rate downward from its earlier prediction of 1.2 percent growth as a result of weaker private demand and investment. Unemployment in the currency club should remain around 12.2 percent until 2015, when it is forecast and hoped to fall to 11.8 percent. The eurozone escaped recession only in the second quarter of last year, whet its GDP rose by 0.3 percent from the first quarter of the year. It was the longest contraction in continental Europe in over 40 years.

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