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Struggling EU casts shadow over Davos

2015-01-20 14:38 China Daily Web Editor: Qin Dexing
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This year's World Economic Forum will take place from Jan 20 to Jan 24 in Davos, Switzerland. Yu Yang / Xinhua

This year's World Economic Forum will take place from Jan 20 to Jan 24 in Davos, Switzerland. Yu Yang / Xinhua

The rise of China has been dominating the agenda of the annual meeting of the World Economic Forum in Davos, Switzerland, for the past couple of years and, according to some observers, it will continue to do so this year.[Special coverage]

There is every reason for the European Union, still at the risk of entering its third recession since 2008, to top the agenda at Davos 2015. This should be the case especially because the EU is passing through a phenomenal month thanks to economic factors and much more.

Panic, fear, complaints and nervousness are once again rising among the EU public and leadership because of four factors.

First, on Jan 7 three gunmen attacked the offices of satirical French magazine Charlie Hebdo in Paris and gunned down 12 people. In the next days, two of the attackers, four shoppers and another terrorist suspect were killed in the French capital. Belgium has beefed up security to thwart any terrorist attack, and other member states of the EU, including Germany, have raised their security levels because of their somewhat aggressive foreign policies and to protect freedom of expression without exhibiting corresponding respect for other cultures and faiths.

Second, the shocking happenings were followed by the central bank of Switzerland unexpectedly scrapping a cap on the Swiss franc-euro rate, which caused the euro to drop as much as 30 percent against the Swiss franc on Jan 15 - possibly the highest single-day movement in the history of the foreign exchange market. This will make life immensely difficult for Swiss exporters.

The third factor is linked to the second shock for the EU. Many anticipate the European Central Bank will make the long-debated decision on Jan 22 on whether to buy government bonds to increase money supply or to launch a quantitative easing (QE) policy. If this happens, the global market will respond wildly, with China already identifying it as one of the uncertainties that could have a great impact on its economy.

And the fourth factor is the Greek election, which, according to initial reports, could see the far-left party Syriza forming the new government. This could create a stir in the financial market, strengthen the Grexit (Greece's exit from the eurozone) debate and dampen public and business sentiments.

There is a fifth factor too: the ongoing Ukraine crisis and the sanctions and counter-sanctions between the EU and Russia, which have already caused damage to both economies. Although this is not a new happening, neither side has been able to find ways to overcome the crisis.

Each of the above factors could weaken the EU economies further. From the perspective of policy, the EU economies, their neighbors and the rest of the world need to work together to avoid further market shocks. This is short-term effort but in the long run, the EU, as an evolving monetary, fiscal and economic union, should forge a unitary policy. Of course, it should also deepen political reform and take measures to minimize the economic and market uncertainties that emerge from its member countries' competitions.

Some may say that the collapse of the euro is good news for Chinese tourists, because they can spend less to visit the EU countries and find it easier to invest money and buy property there. But can they really do so with fear, uncertainties and panic ruling the markets?

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