As the Greek financial crisis plays out on the streets and in the council chambers of Europe, it’s hard to look beyond the day-to-day drama to the longer term. But that’s what we’ve tried to do in our new Future Perspectives report, which we have published this week. And the results are surprising. The crisis will end, because ecomnomies don’t continue is a state of permanent crisis. To do that, Germany will have to export less, and the peripheral economies will have to export more – and there’s a lot of opportunity in that economic re-balancing.
The report has developed five scenarios for the future of the eurozone, ranging from its survival in its present form to a return to national currencies. From this it forecasts three big changes, looking out to 2020.
One: New powerhouses will emerge. Italy will be one of the big winners of the pos-euro crisis economy, just as it was in the ‘dolce vita’ economy of post-war Europe. If it leaves the euro, it will renege on its debts, and massively devalue. That will massively boost the economy, enabling it to rapidly catch-up with its more prosperous Northern neighbours. Meanwhile, countries such as Poland – with big populations, low debts, and strong growth – will emerge as the powerhouses of Europe.
Two: Germany will have become a consumer society – and rely less on exports. That will mean boosting retail and leisure spending, property development, and industries such as financial services, where it has not been very innovative. Paradoxically, while the UK is trying to re-balance its economy to become more like Germany, Germany will need to become more like the UK.
Three: There will be huge opportunities for companies that read these trends right. New markets will open up in Germany as retail, leisure and property grow – all areas where domestic German companies are not very strong. In Spain, youth unemployment will come down dramatically, meaning that young people will start spending. In Italy, a growing economy will see a huge rise in female participation in the workforce – changing the shape of consumer demand. We’ve done some analysis of the impact of that change on the Italian economy, and reckon that it’s worth around €48 billion a year – or 3% of Italian GDP.
Four: Europe’s banks will be the big losers. Debt will be written off, sooner or later, and as a result, most will end up in public control.
In short, businesses will have to redraw their mental maps of what the European economies look like, and where the opportunities will be found.
Andrew Curry is a Director of the Futures Company in London, Matthew Lynn runs Strategy Economics. The report, The future of the eurozone, is published as part of The Futures Company’s thought leadership programme, Future Perspectives. We are also publishing this week a report on doing business in slow-growth economies, called Quickening the pace, which will also be available from the website. The picture at the top of tjhis post is published by Wikimedia Commons.