Spain has been held up to other euro zone countries as an example of the benefits of structural reform. That’s fair enough, up to a point. The conservative government’s bank rescues and labour reform have stabilised the financial system and improved competitiveness. The economy is expected to grow 1.2 percent this year and 1.7 percent next year by the European Commission.
Matteo Renzi’s Plan A is to push through domestic reforms, hope the European Central Bank manages to get inflation ticking up, and keep his fingers crossed the Italian economy stops shrinking. But if this fails, a mega wealth tax, debt restructuring and/or exit from the euro beckons.
The outgoing president of the European Council, Herman Van Rompuy, said at the weekend that his successor, Donald Tusk, currently Poland’s prime minister, faces three big challenges: the stagnating euro zone economy; the Ukraine/Russia crisis, which he described as the gravest threat to continental security since the Cold War; and the risk that Britain will quit the European Union. The problems are all linked.