The European Central Bank is heading for a two-year leadership overhaul that peaks with the selection of a successor to President Mario Draghi, and it will be politics as much as ability that determines who get the jobs.
Five of the ECB’s seven top posts will be vacated by the end of 2019, starting with Vice President Vitor Constancio this June. Among the criteria candidates should bear in mind: being a woman is a plus, and appointing a government minister would break with tradition.
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The situation is currently better in the euro area, so now is time to shake it up.
The long period of lackluster growth since 2011 led to a drop in potential growth. High unemployment and lack of investment dented the mainsprings of European growth. The euro area no longer has the same facility it had before the 2008 crisis to grow at an average pace of 2%. In the current circumstances, 2% looks close to the economic cycle peak, and the situation is even more stark in France, where growth stood at around 2% on average before the financial crisis, while the 2017 figure is poised to come to 1.8% at best. These figures along with statistics for 2018 are close to the cycle peak and we should expect growth to take a downturn from 2019 onwards. The role of economic policy should be to promote an improvement in potential growth to keep the economy on a stronger growth path over the long term.
Key areas for consideration. Continue reading
The economic prospects in the Euro Area are clearly on the upside in September. The synthetic index which is a weighted average of the manufacturing and services indices is at its highest since April 2011. This suggests a rapid growth figure for the second part of 2017.
The manufacturing index is at its highest since February 2011 and the index for services is close to top levels seen at he beginning of the year.
Growth and employment are on the upside. It’s time for the Euro Area to create conditions for a long term sustained growth strategy with structural reforms locally and for the European institutions
The graph compares the composite indices for the 4 major countries of the Euro Area plus the United Kingdom
The French economic momentum is now close and in phase with what is seen in Germany pushing the Euro Area dynamics on the upside. Spain remains a major contributor. It’s hard for Italy to follow the other 3 notably in the service sector.
The question of Spain is important: it has been a major contributor to the EA growth since 2014 but internal troubles after the referendum in Catalonia could create a less homogeneous trend in Spain and could damage the EA prospects. For the moment the uncertainty remains high.
The United Kingdom does not take advantage of the contagion that may come from the Euro Area. We see that since mid-2017 there is a divergence between the Euro Area and the UK. That’s Brexit uncertainty.