00:00The International Monetary Foundation has said that Europe needs to harden its economy
00:04to a more adverse global environment. In a report released yesterday, the institution
00:10also warned that the war in Iran poses a serious headwind to economic growth.
00:16It said that in the most severe downside scenario, the eurozone could edge closer to a recession.
00:24Now, joining me in the studio this morning to discuss more is the author of that report, Helge Berger,
00:31who is the deputy director of IMF Europe. Good morning, sir. Really good to have you.
00:35Good morning, Maggie.
00:36We know that there's still major uncertainty over the situation in the Middle East and in Iran.
00:42But as you see things this morning, what is the economic outlook now for Europe?
00:48Well, when we started thinking about the outlook first early in the year,
00:52we thought we would be upgrading growth in Europe, especially for the eurozone. That's not what
00:56happened. With the outbreak of the war and the higher energy prices, things have taken a turn to
01:01the worse. So currently, we think that growth will be around 1.1 percent this year and 1.2 percent
01:07next year, significantly lower than what we initially expected. This is because consumers
01:12feeling the pinch in their budgets, they're spending less. Investors have a higher cost of
01:17doing business so they're more careful. And in the worst case scenario, because you talk about the
01:23most severe downside scenario in your report, you said that the eurozone could also edge closer to a
01:30recession. Is that an increasing possibility now? We're certainly accumulating downside risk,
01:35but how far this will go depends on the war and that's anybody's guess. The upside for Europe is that
01:41it has become much more resilient in terms of renewable production and the part of renewables
01:46in the energy mix. So any increase in energy prices, while still bad for the economy, isn't as bad as
01:52it
01:52used to be. I'll come to that point of resilience in just a bit, but I want to ask you
01:56about the
01:56response of European governments and the policies they've introduced. Have they properly weighed the
02:01costs of these interventions? It's difficult, right? So on the one hand, you want to help households. On the
02:06other hand, if you do it the wrong way, you dampen the price signal that comes from higher oil prices
02:12and energy prices, and people will stop saving energy. So you want to target the support, you want
02:17to go to the vulnerable households and help them directly where it hurts, but you don't want to sort
02:22of do more damage than good with these kinds of measures. And have those measures been targeted
02:27enough, would you say, in general? Well, governments are trying. It's usually a mix of good and bad
02:33policies. But most governments have in some way or the other tempered with the energy prices,
02:39which is not the way it should be going. So as time passes, if the situation continues,
02:43we need to be more targeted. Okay. And you also mentioned in that report
02:47that Europe needs to harden its economy in a world of a series of shocks in a more volatile world.
02:54How feasible is that, do you feel, when so many governments are seeing a big fiscal squeeze?
03:00Well, you know, the countries in Europe will need to reform under pressure. That's just how it works,
03:05and Europe is usually quite good at this. So we need to make progress. We need to deal with the
03:11single market, which is still much more fragmented than we would like it to be. Lots of trade,
03:15lots of activity stops at the national border. That's not what we want. Think about electricity.
03:20A unified electricity market would do wonders for the European economy. Prices would be lower,
03:25there would be less volatile. That is the way to go, makes the European economy more resilient
03:30and growing faster in an adverse world. And very briefly to close, we know there's also a big issue
03:37of Europe's competitiveness in the world right now. You did flag in that report yesterday some small
03:42concerns over some measures, including the Industrial Accelerator Act, this new measure to shield homegrown
03:47industries. Industrial policy has a role to play, but it's very limited where markets fail and governments
03:53need to step in. But it's not a cure-all. If you want to lift productivity, if you want higher
03:58growth,
03:58more resiliency, you have to go and do the hard reforms that help the labor market, help the product
04:03markets. And as I said, the single market, especially for electricity, energy, would do wonders for the
04:08European economy. Okay. Helge Berges, thank you so much for joining us in the studio this morning
04:14and for all your insights.
04:15A pleasure.
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