EU Regulations...and growth?

Wall Street may have been the epicenter of the financial crash that shook the world, but Europe -- along with other global markets -- experienced the aftershock in the form of a deep recession in 2009. As a result, European countries can expect to experience only weak growth in the coming year, according to Wharton faculty and other experts.


"The immediate concern in 2010 is still the crisis, which hit some countries more than others, but [almost] every country has been affected," says Wharton management professor Mauro Guillen. "I think everybody is hoping things are going to turn around. The problem is, it's not obvious how [that will happen]."


In addition to an anemic recovery, Europe will face a number of key challenges that will shape the business and economic environment in 2010 -- including concerns about economic integration, sovereign debt default, regulatory change and the European Union's place in the global economy.


The European Commission forecasts overall growth of just 0.75% in 2010 and 1.5% in 2011, compared to 2.6% in 2007 before the crisis took hold. At the end of 2009, the European economy was rebounding, but the Commission warns that this was due in large part to unprecedented fiscal and monetary policy stimulating consumer confidence. In 2010, the Commission predicts, growth will be weaker than usual due to continued deterioration in labor markets, massive financial deleveraging, low demand, weak profits and modest credit growth.


Guillen notes that unemployment is a serious drag on European economies. The EU estimates employers will have shed 7.5 million workers through 2009 to the end of 2010, leveling off at a rate of about 10% in 2011, when employment growth is expected to again become positive.


Despite such obstacles, he adds, Europe has the potential to increase its already strong position in the global economy as unification measures take hold and expand the EU's economic importance. But for now, Europe continues to act like a "fragmented player," according to Guillen, who notes that European countries "don't throw their weight around" as a unified force. "Europe has to find its own voice in global affairs. It's been trying hard for the last 20 to 30 years." For example, given the rising competition among Western countries to court China's favor, it will be "interesting ... to see how Europe relates to China and the United States [given that it] has many trade and commercial agreements with the U.S. and major dialogue with China."


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