Eurozone: Economic prospects for 2013 look bleak across the Continent

Street riots, political instability, financial bailouts and harsh austerity measures: The financially crippled eurozone endured another turbulent year in 2012 as European leaders were once again tested over their handling of the ongoing debt crisis.

As 2012 draws to a close, many European nations, including the Czech Republic, remain mired in recession with their citizens facing bleak prospects for the new year.

Almost all economists are pessimistic about the chances of a eurozone recovery in 2013, with some believing a rebound will not happen until 2014 at the earliest.

Much of Europe's fate, and the future of the European Union itself, hinges on what happens in Greece.

The ongoing Greek drama, where austerity measures have taken a devastating toll and euro leaders have bickered over its direction, has again proved to be the dominant story for Europe in 2012.

In a general election May 6, a majority of Greeks voted for parties that rejected the country's bailout agreement with the EU and the International Monetary Fund.

After attempts to form a coalition government failed, the country returned to the polls June 17 with the pro-austerity party New Democracy gaining the most votes, allaying fears the country was about to leave the eurozone.

While the widely discussed "Grexit" failed to come to pass in 2012, the prospect of a eurozone departure caused widespread alarm across the continent.

At an EU summit in May, Prime Minister Petr Nečas joined other European leaders in publicly acknowledging that the Czech government had drawn up its own contingency plans for Greece's possible exit.

"Of course, it would be better if Greece complied with the austerity program and stayed in the eurozone," Nečas said.

"Given there is significant contagion risk about Greece's departure from eurozone, there is a risk that Czech export opportunities could be diminishing, not only to Greece but to all of the other EU countries," Pavel Sobíšek, the chief economist at UniCredit Bank told The Prague Post in June.

With Christmas approaching, Athens received an early gift Dec. 13 when the EU officially released 49 billion euros in bailout aid.

While the developments in Greece provided more than enough drama, it was not the only country to witness violent street protests and widespread civil unrest in 2012.

Angry protesters in Spain took to the streets Nov. 14 in the second general strike in less than a year of Mariano Rajoy's People's Party (PP) government.

The violent action resulted in 118 arrests and more than 70 injuries across the country, while a similar strike in Portugal brought transport links, schools and many businesses to a halt.

Hundreds of Portuguese protesters, some wearing t-shirts with swastikas, shouted "Adolf Merkel" and "Merkel out!" when Angela Merkel arrived in the financially troubled country for emergency talks.

As leader of Europe's largest economy, the German chancellor has found herself increasingly isolated with her pro-austerity stance.

Perhaps her frostiest reception this year was from France's newly elected President François Hollande, with whom she clashed heavily throughout 2012.

In May, the Socialist candidate swept to power on a wave of anti-austerity sentiment, having declared during campaigning it was "not for Germany to decide for the rest of Europe."

However, EU leaders did manage to come together at their final summit in December, approving centralized supervision for banking, although Nečas declared the Czech Republic had no reason to join it.

In fact throughout 2012 the Czech government's animosity toward Brussels was on constant display.

The Czech government fired its opening salvo of the year Jan. 30 by refusing to sign, along with the United Kingdom, the "fiscal pact" agreed by the EU at the end of 2011.

President Václav Klaus, a leading "Euroskeptic," took repeated potshots at the EU and during a July tour of Asia he declared "deep systemic changes" were needed for it to work.

"The countries that have fallen prey to the European currency union should have the opportunity to leave it and have their own currencies," he remarked.

Although European Council president Herman Van Rompuy ended this year's final EU summit suggesting "the worst is now behind us," many leading Czech economists remain pessimistic about the debt crisis.

The country's most powerful banker Miroslav Singer is expecting 2013 to "look bad" in the EU, but says he's relatively optimistic about the economic prospects for the following year.

"2014 is going to look better, especially because there are countries that are essentially finished with consolidation, so they do not need to cut any more even with this subdued demand overall in Europe and in this tough situation. … That's going to provide some help," the Czech National Bank governor recently predicted in an interview.

It is a pessimistic outlook shared by most other analysts in the Czech Republic.

Andrew Greene can be reached at
agreene@praguepost.com