How Do you Solve a Problem Like the Euro?

02 October 2014

Standard Life Investments, the global investment manager, highlights that we are still in a multi speed growth world with Europe in particular facing significant long-term adjustment challenges. As the world's second largest economy, the Eurozone matters a lot for global growth and it is important that European policy makers address the demand and supply-side problems that are limiting economic recovery.

The latest edition of Global Outlook looks at the issues that are right at the heart of asset allocation, and goes beyond a narrow focus on US economic growth to analyse the global drivers of long-term inflation expectations and other key factors influencing investment returns such as regulatory issues.

Jeremy Lawson

Jeremy Lawson, Chief Economist, Standard Life Investments, said

"We believe that European recovery is still very weak. Draghi has finally acknowledged that fiscal policy has been too tight and accelerated structural and financial reforms are now needed to stop Europe being trapped in a low growth equilibrium. Unfortunately he only has control over one policy area - monetary policy - and the flaws in the Eurozone's institutional design make it hard to achieve the right fiscal balance that is now required to get growth up and inflation back to target.

“The banking union also falls short of what is ultimately needed to allow the currency union to function better. With respect to structural reforms, the heavy lifting has to be done at the national level. Portugal and Spain are already reaping the benefits of the labour market reforms they have implemented but France and Italy continue to lag well behind. All of this implies that the Eurozone is at risk of suffering a lost decade in terms of living standards unless tough decisions are made.”