The stats and the markets concur: Europe is no longer an economic basket case

Next year, if forecasts prove right, no European country will see its economy decline

 

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The politics may be all over the place, with the various Europhobe parties set to gain one-third of the votes at the European elections later this month, but the economics have actually become quite favourable in the EU. The recovery is becoming more broad-based almost by the day and while there is nothing like the surge in growth that is happening in the UK, it is stronger than most people expected even a few weeks ago.

You can catch a feeling for this in different ways. One is official statistics. The European Commission has just published its forecast for this year and next, which expects growth at 1.2 per cent and 1.7 per cent for the eurozone in 2014 and 2015, with growth at 1.6 per cent and 2.0 per cent for the EU as a whole. So while it is true that the non-euro members are doing much better than the eurozone ones, there is certainly a gradual improvement across the board.

Even the laggards are doing better. Last year nine of the 18 eurozone countries saw their economies shrink. This year only one, Cyprus, (along with Croatia, which is outside the eurozone) is expected to do so. Next year, if these forecasts prove right, no European country will see its economy decline.

A second way of looking at what is happening is to see what the financial markets think. They too are much more positive, indeed to judge by what has been happening in the last few days, even more so than the economists in Brussels. Here is one figure: 2.998 per cent. Yesterday, at lunchtime, Italian 10-year bond yields fell below 3 per cent for the first time since Bloomberg began collecting data in 1993. The equivalent Spanish debt is trading around 2.95 per cent. By comparison UK 10-year gilts are at 2.66 per cent, and US treasuries 2.60 per cent. That is not much of a premium for lending to Italy or Spain rather than the UK or US. The markets are saying that they think Italy and Spain are good for their money; they are not going to go bust after all.

This will be small comfort for the hundreds of thousands of young Italians and Spaniards who have had to emigrate to Germany or the UK to get a job, or indeed for British home-owners in Spain who have lost half their life savings in the collapse of the property market. But it is the job of markets to look forward and they are implicitly saying that better times are ahead.

Or take a third indicator of economic health – car sales. I like car sales because: (a) they are hard numbers – you can count how many cars are sold – and (b) they are the biggest single consumer purchase, so they tell you a lot about consumer mood. In the first three months of this year sales in Spain are up nearly 12 per cent, Italy nearly six per cent, and in France just under three per cent. Now this is poor compared with Britain, where sales are up nearly 14 per cent, and the absolute level of sales is still the second worst since the present series of data began in 2003. But at least the numbers are heading up, not down.

So what does this mean for the European elections? You can argue that because the benefits have been so slow to start coming through, and so limited, that voters will continue to punish the political elite that imposed such austerity on them. It is hard not to have sympathy with that. Yet it would be intellectually dishonest not to acknowledge that in its own terms, European policy has been successful. The euro has, for the time being, been saved. The banking system has, for the time being, been saved. Growth, of a sort, has been rekindled. Even if one-third of the voters implicitly or explicitly reject the policies of the elite, a majority will still support them.

The big questions about the future of the European economy come later. As we move through to the 2020s and see China overtaking the US and continental Europe being left further behind (for demographic reasons as much as anything else) it will be the time for European people to question whether the project has really increased their wealth and security, and if not, what should be done about it. Meanwhile, however, the acute phase of the crisis is clearly past. Those of us who believed that the eurozone would get through its first crisis, but not its second, have been right so far.

The best of British?  It takes a foreigner to recognise it

So Angela Ahrendts, she who revived Burberry before going over to  Apple as its head of retailing, gets a welcome package that includes £40m worth of Apple shares. She started her new job last week. Well, it is a lot of money even by US corporate standards but it reflects both her marketing genius and Apple’s need to make retailing work better for it, particularly in the emerging world.

At Burberry Ahrendts took over from another American, Rose Marie Bravo, who had started the recovery of the brand, and took it further by pioneering the push  abroad, with three-quarters of Burberry stores now  in the emerging world.

Inevitably with pay levels like this the focus turns to the person, all the more so since she is the first woman to become a member of Apple’s executive team. But from an economics perspective the story so far is surely rather different. It is the way in which it takes an outsider to spot the true value of a British brand and understand how to sell that brand to the world.

Thus it takes the Tata group to know how to sell Jaguars and Land Rovers to China. It takes the Chinese to appreciate the value of the MG brand and sell that, on a much smaller scale, to China too. The chief executive of Diageo – with drinks brands from Johnnie Walker to Gordon’s – is an Indian businessman, Ivan Menezes. Bentley  has been revived by VW and its chairman, Wolfgang Schreiber, is German. British Airways is led by  an Irishman, Willie Walsh. BP has been rebuilt after the catastrophe in the  Gulf of Mexico by an American, Bob Dudley.  And so on.

An explanation? I don’t have one but ponder this somewhat uncomfortable thought. It may well be that foreigners are better able to appreciate both the strengths and weaknesses of British brands, but maybe it is also that British brands are better respected around the world than British business leaders?

h.mcrae@independent.co.uk

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