If you think the economic and political crisis in the United States is unnerving, you should check out the view across the pond. The mood in Europe is grim. On the streets of European capitals, at family gatherings, and in corporate boardrooms, what could turn out to be the panic of the decade is simmering as companies and individuals worry about how the future of the continent will evolve.
The fiscal crisis engulfing several European countries, including Greece, Ireland, Portugal, Spain, and Italy, is threatening to spill over into the rest of the continent, weakening consumer confidence and creating a nightmarish image of a region about to implode. Businesses are fretting that the fragile economic recovery they were nurturing will fizzle out, and the word “downturn” is being murmured again. Especially in the electronics sector, which depends so heavily on corporate IT and consumer spending, the outlook isn't pretty.
Is this the new reality, and do Europeans think their leaders are effectively managing the crisis? The answers, respectively, are Yes and No. The new reality is that of uncertainty about the future, and, absolutely, the political leadership has been slow to grasp the huge scope of the challenges facing the continent, hence their mostly hesitant response so far. The business climate is growing worse, and the financial crisis involving the euro is creating an atmosphere of deep uncertainty for families, too.
It’s obvious that businesses are being hit across the region, but my greatest fear is that the seeds of uncertainty being sown across the major economies could force a shutdown in consumer spending and corporate capital expenditure. If this were to happen, what started as a fiscal crisis in the backwaters of Greece and Portugal could become a tsunami sweeping Europe back decades and hurting businesses across the world.
European leaders may finally be waking. In a letter, Jose Manuel Barroso, president of the European Commission, warned the 27 EU members the Spanish and Italian sovereign debt problems represented a “cause of deep concern.” He further said:
- Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis. Markets highlight, among other reasons, the global economic uncertainties due to both economic growth and the protracted decision on budgetary adjustments in the US… Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery.
Which way out? Some industry observers have suggested even further fiscal tightening, which is like rescuing a drowning man by hauling him out with a noose around his neck. Businesses are beginning already to cut back on spending, which will add to the already high unemployment conditions in Europe. The overly subscribed current welfare system will certainly fail to contain what might result if this vicious cycle continues.
Europe will eventually ride this out; it has endured worse. But what it needs right now — and what will get businesses hiring again and consumers spending — is the hope of a better tomorrow, and that exactly is what is sorely lacking right now. Sony Kapoor of think tank Re-Define put it best when he said in a BBC report: “Without a clear hope of a better tomorrow that only a significant reduction in debt stock can bring, depositors and taxpayers will continue to flee, entrepreneurs to emigrate, and growth-inducing private investment will not take off.