Allianz’s chief economic adviser Mohamed El-Erian cited the shrinkage of the German economy and Brexit uncertainty as factors increasing the likelihood of a recession in Europe in the next decade, Business Insider reported on Tuesday, August 20.
These comments come a day after the German central bank warned that the economy could shrink for a second consecutive quarter. Finance Minister Olaf Scholz said the government was prepared to spend 50 billion euros to boost the flagging economy.
This morning European Council President Donald Tusk firmly rejected UK Prime Minister Boris Johnson’s demand to remove the Irish backstop from the Brexit deal saying there were no “realistic alternatives” to prevent a hard border in Ireland — increasing chances of a no-deal exit.
El-Erian observed that Europe is “quickly losing momentum” and the EU is “teetering on the edge of a significant slump.”
He added that “the five major economies in Europe are all distracted by their own problems. Virtually nothing is getting done. No pro-growth policies are emerging from these countries.”
Adding to the implications of Brexit in the UK, an economic slump in Germany and Macron’s political difficulties with the Gilets Jaunes in France, a political crisis in Italy has sparked further economic uncertainty.
Matteo Salvini’s call for a no-confidence vote in current President Giuseppe Conte caused markets to plunge in the hugely indebted country.