In our discussion with former Bank of England Governor Mervyn King about Europe’s recovery, he stressed the importance of a more balanced union where the gap between borrowers and savers is narrowed. When we asked Allianz Chief Economic Adviser Mohamed El-Erian the same question, he focused on two additional areas where Europe needs to focus. The three challenges for Europe as he explained it are:
1. Structural reform to restore economic growth and competitiveness.
2. Demand balance. As El-Erian put it, there are too many areas in the EU where “The will to spend isn’t coupled with the wallet to spend.” This goes to Mervyn King’s point about balance.
3. Excessive debt in the system. The continued high debt levels discourage new investment, he says.
“What you need is progress on these three things. What makes Europe particularly challenging is you’ve got to do it in the context of a monetary union. And an incomplete economic union,” he says.
To return on the path to full strength, Europe needs a monetary union, banking union, fiscal union, and greater political integration, says El-Erian.
“When you put it in that way you realize that, while the solutions are known, actually implementing them is quite hard.”
Watch his full response in the above video.