Wednesday, November 22, 2017

Europe does not yet have the Banking system and Capital markets that optimize financial intermediation and maximize defenses against shocks.- David Lipton IMF

Publication - Europe: From Recovery to Resurgence? - IMF First Deputy Managing Director David Lipton - London November 14, 2017

Good afternoon. Thanks to UBS for inviting me to this event. I would like to set the stage for your discussions here today and tomorrow by offering a few IMF perspectives on issues that Europe is grappling with these days. 


Let me start with an overview of where the European economy stands in the effort to move beyond financial crisis, economic retrenchment, and political realignment and on to growth. Then, I’m going to look ahead to policies which can help Europe sustain growth momentum—and to build defenses that will be needed against the next shock. 

My basic point is something that the IMF has been saying: today’s recovery offers an opportunity to fix the roof while the sun is shining. But the moment also has a deeper historical resonance. In the wake of the financial crisis, we are at a turning point: reforms and a renewed, pragmatic commitment to the next stage of cooperation could propel Europe’s economy to resurgent prosperity. 

That comment may have you asking, “Does this IMF guy realize he is speaking in London, in 2017?

A reasonable question.

I won’t attempt to explore the political ramifications of Brexit. Much has been said and the choices are coming into focus. While it remains difficult to predict all the consequences, the prospect of Brexit surely concentrates our minds on the future of the financial system architecture. And on the question of how to avoid fragmentation of banking and capital markets, which would prove costly. With the untangling of the markets and institutions whose Euro-based lifeblood flows through London, it will be essential to address the where’s and how’s of the financial integration and oversight capacity that the EU-27 will require. 

I will come back to the subject of financial architecture. But not to get ahead of myself, let’s first take a look at the current economic situation.

Global and European Economic Developments

The global economy is in a good place. We have upgraded our forecast all year, most recently to 3.6 percent this year and 3.7 percent in 2018. While some fuel and commodity exporting countries are still in adjustment mode, all of the advanced economies, and most emerging markets are growing and 75 percent of the global economy is accelerating. With import-intensive investment higher across advanced economies, trade is once again expanding faster than GDP, spreading the benefits of economic recovery.

This is also true of Europe. We released a Regional Economic Outlook for Europe yesterday, which projects growth of 2.4 percent in 2017 and 2.1 percent next year. European joblessness, including among the youth, remains stubbornly high. And in too many cases, wage growth in manufacturing continues to trail behind productivity growth.

That said, in Europe, we are seeing the most evenly distributed growth picture in more than 20 years.

Several European countries have demonstrated a commitment to needed reforms that will promote stronger growth. That said, those efforts need to be intensified across the region.

Let’s zoom in on the Eurozone, where headline inflation remains subdued; below the ECB’s objective to be close to 2 percent. We have consistently and firmly supported the ECB’s accommodative monetary policy—and that remains our view.

Regional Economic Outlook: Europe Hitting Its Stride

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