Towards a Post-Crisis Global Economy: Not out of the Woods yet, Europe now the Key Risk?

By the autumn of 2009, there must be convincing signs of economic recovery to limit the threat of another round of industry cutbacks and financial market volatility. At present, confusion still reigns over the precise state of the world economy. China is strengthening and the recession may be bottoming out in countries such as the US, UK and France. On the other hand, conditions in some regions - most importantly in most of the Eurozone and emerging Europe - are still deteriorating and creating the risk of further feedback effects.

Adding to the short-term threat, there is a potential policy vacuum in the Eurozone until elections in Germany are over in September. One reason for the ECB's recent injection of funds may be the need to ensure stability over the next couple of months - and concerns continue over the performance of the European banks and the need for transparent stress tests.

Although the unemployment rate has risen more steeply in the US than Europe, if short-term measures to support jobs in the Eurozone (especially in Germany) lapse, this could add another 2-3 million to Europe's jobless total by the end of 2009.

The negative effects of the crisis are likely to be even more persistent in Europe than in other regions because of weak internal dynamics and difficulties linked to complex cross-border banking and policy synchronization. This situation is already impacting on social cohesion and voter sentiment, casting a long shadow over both EU integration and potential expansion.

RIIA: Towards a Post-Crisis Global Economy: Long-Term Growth Scenarios and the Impact on Exit Strategies, September 2009 http://www.chathamhouse.org.uk/publications/papers/view/-/id/776/

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