The euro area’s hesitant recovery is giving global finance chiefs a respite from the bloc’s growing pains.
At a Group of 20 meeting in Ankara on Friday and Saturday finance ministers and central bankers from the world’s leading economies grappled with China’s slowing economy and the prospect of higher U.S. interest rates. Greece’s travails didn’t come up.
“The recovery in Europe is getting stronger,” European Union Economic Affairs Commissioner Pierre Moscovici said in an interview with Bloomberg Television. “Europe is not seen here in Ankara as part of the problem, but as part of the solution. It was not always the case at such meetings.”
European policy makers who’d been at the epicenter of all-night negotiations to keep Greece in the euro at the start of the summer were largely on the margins of the G-20 talks as delegates tried to gauge exactly when the Fed will raise interest rates and how the Chinese will stabilize their financial markets.
“Europe is stealthily improving,” Catherine Mann, chief economist at the Organization for Economic Cooperation and Development in Paris, said in an interview. “The ECB is saying it’s standing by in case of need, which is important.”
That support may yet be called for.
With the region still healing from a sovereign debt crisis and its economy growing about half as fast as the world as a whole, European policymakers have little room for complacency. After the European Central Bank trimmed its growth forecasts last week, President Mario Draghi pledged more stimulus should the emerging market turmoil preoccupying the G-20 threaten a euro-area recovery.
Indeed, among the pledges of currency solidarity and policy coordination, the G-20 also had a message with particular resonance for Europe.
“Monetary policy alone cannot lead to balanced growth,” it said.
That’s a phrase that the U.S. and Draghi pushed to insert in the communique, according to two officials involved in the process. In part, it serves as a reminder to European governments that they need to do their bit to take advantage of the ECB’s extraordinary measures which have stabilized the region’s economy.
Economy Minister Luis de Guindos argued in Ankara that his work rewiring the Spanish economy showed what is possible if policy makers roll up their sleeves and tackle reforms.
“Spain two years ago was the principal concern of the euro area and the global economy,” de Guindos told reporters. “At the moment we’re growing at nearly 4 percent, we’re creating jobs, we’re generating confidence in the capital markets.”
Elsewhere in the bloc, there is work to be done.
The euro area will expand 1.5 percent this year compared with 3.3 percent for the global economy, according to the International Monetary Fund’s July forecast. IMF Managing Director Christine Lagarde said that the fund’s forecasts would soon be reduced.
German industrial production increased 0.7 percent in July after dropping 0.9 percent in June, data showed on Monday. That follows a report on Friday hinting at weakness ahead: factory orders fell in July, led by a 9.5 percent drop in demand from outside the euro area.
“The global outlook is mixed,” Italian Finance Minister Pier Carlo Padoan said in Ankara. “There are areas of the world which are doing well, like the U.S. Other areas that are doing so and so, but could do better and maybe are not very satisfactory, like the euro area.”
Moscovici struck a more bullish tone than Lagarde. The European Commission is sticking to its 2015 forecast, also for
1.5 percent, he said.
Domestic demand and investment provide support to the European economy that has been lacking in previous years, the commissioner argued, and budgetary policy, until recently a drag on the region’s growth, is now neutral and may turn positive.
“For 2016, at this stage, I feel confident about the European economy,” Moscovici said. “First we have the tools to react. Second, we have stronger economies with a recovery that is clearly on track.”