IAFEI Quarterly - 32nd Issue

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Press, Journal Article
INSIGHT
March 2016 The Treasurer 27
�ack in �uly ����, after a turbulent
period when the euro’s very survival
seemed to be at stake following
rolling sovereign debt crises that nearly
saw Greece quit the EU, European
Central Bank (ECB) president Mario
Draghi pledged to do “whatever it takes”
to save the single currency. Together
with other ECB initiatives, including
quantitative easing (QE), that was
enough to put a loor under the euro
and marked a turning point for Europe.
Four years on, the existential threat
to the euro has arguably passed, but
large parts of the 28-member economic
bloc have yet to fully recover, sufering
stagnant growth, high unemployment,
low interest rates, below-target inlation
and a refugee crisis that is causing
fractiousness and disunity. Speaking
at the World Economic Forum in Davos
two months ago, Draghi admitted that
Europe’s economy was probably in need
of another shot in the arm – possibly
including further QE – as inlation
remains stubbornly low.
The Italian-born central banker says
the ECB has “plenty of instruments”
at its disposal to rectify the situation
and push inlation back up towards
the central bank’s 2% target. “We have
the determination, the willingness
and the capacity to act and deploy those
instruments,” Draghi told an audience
in the Swiss ski resort.
That same week, French president
François Hollande was forced to declare
what he called a “state of economic
emergency” in France, as he unveiled
a €2bn job-creation plan aimed at
reducing France’s stubbornly high
10.2% unemployment and boosting
the country’s meagre 1% growth – as
well as giving himself a chance of being
re-elected as president. Hollande was
galvanised into action after a package
of liberalising reforms, spearheaded by
economy minister Emmanuel Macron,
failed to make any meaningful dent in
unemployment. The declaration came
hard on the heels of the national state
of emergency Hollande declared after
terrorist attacks in Paris and Saint-
Denis killed 130 people on 13 November.
Unemployment rates in other EU
countries, such as the UK and Germany,
are half those of France – but they are
even higher in Italy and Spain.
Economic growth forecasts
In early February, the European
Commission updated its forecasts for
EU economic growth, saying it expected
the bloc to grow at 1.9% in 2016, down
from its earlier estimate of 2%. For
the eurozone, it said growth would be
a marginally slower 1.7%. Economic
consultancy the Centre for Economics
and Business Research (CEBR) said: “The
trifecta of low inlation, accommodative
monetary policies and a weak euro seem
to be boosting the region for now.”
Corporate treasurers are concerned
that Europe’s economy could once again
go into reverse gear and are taking steps
to ensure their irms are ready should
conditions turn ugly. The treasurer of
a large pan-European energy company,
who asked to remain anonymous, says:
“The euro crisis could raise its head
again, and a lot of pain is still being
felt in countries like Greece and Spain.
I don’t think it would take much.”
Paul Wilkinson, head of corporate
inance and treasury at serviced
o�ce provider �egus, says� ��e�ll
see some market turbulence, with
the possibility of another economic
downturn. There are a lot of
uncertainties out there, so lexibility
is key.” Regus, he says, continues to
pursue growth, but only “discretionary”
growth – which can be turned
of �uickly� ��e are looking very,
very carefully at any marginal new
Corporate treasurers are
concerned that Europe’s
economy could once again
go into reverse gear
IKON IMAGES/GARYWATERS
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