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Event Summaries
February 2, 2018

Event Summary: The Economic Future of Europe

by
Henry Jackson Society

By Mirko Giordani

On the 1st of February, The Henry Jackson Society hosted Jeffrey Franks, Director of the IMF Europe Office and Senior Resident Representative to the European Union since March 2015, at the event “The Economic Future of Europe”. Mr. Franks has worked for the IMF for 24 years, with a particular focus on Europe and Latina America. The event was chaired by Mr. Jeremy Lefroy MP.

Mr. Franks began by highlighting the positive growth projections for the advanced economies, which are upwards confronting them with October 2017. This means that advanced economies are growing at a faster rate than in October 2017. Spain, on the contrary, has a downward projection, together with the UK. This means that both Spain and US are growing at a slower rate than in October 2017. Mr Franks continued with the analysis on how Eurozone recovery from the financial crisis lags behind other advanced economies. Despite this, Mr Franks depicted a positive scenario, because in general Eurozone reached and surpassed its pre-crisis GDP. Within the Eurozone, Mr Franks identified different trends. On the one hand, countries like Germany or France reached and surpassed their pre-crisis GDP relatively quickly. On the other hand, Mediterranean countries such as Italy or Spain continue to suffer a slow economic recovery.

Next Mr Franks emphasised that these countries like Greece or Italy, which have a large amount of Gross General Government Debt to GDP,  now have the best opportunity to reduce and restructure the debt. In fact, Mr Franks suggested that low interest rates, thanks to ECB monetary policies, can be crucial in helping to reduce debt. Another difficulty that Eurozone countries are facing is the great amount of Non-Performing Loans (NPL), which skyrocketed since the start of the financial crisis in 2007. Mr Franks stressed the fact that in the last three years, the amount of NPL is gradual but slowly reducing in the Eurozone. Mr Franks highlighted that Eurozone investment flows continue to be below the pre-crisis levels, when countries like Japan, UK and US are performing very well.

In the end, Mr Franks focused his attention on the long-term challenges that advanced economies will face.

  • First, we need to address the fact that advanced economies are facing a constant slowdown in productivity growth, acknowledging that the slowdown is much sharper in the Eurozone.
  • Second, Mr Franks stated that the rate of adoption of new technologies is faster than in the past. However, Mr Franks particularly stressed that in the future robots will not replace humans.
  • Third, the ageing population in advanced economies will have serious impacts on social security and welfare budgets. Mr Franks, on the one hand, suggested immigration was an antidote against the inexorable aging process in western countries. On the other hand, he clearly recognised that people can raise concerns on the immigration policy.
  • Finally, Mr Franks moved towards a grand scenario of the new geopolitical challenges. Among them, Mr Franks identified the rise of China and the spreading of political populism as the most crucial challenges to the current world order.