Sunday, 7 July 2013

The EU Running At Two Speeds?

Our recent blog, in which the collapse of the Euro has been estimated for Q3 2013, has sparked much discussion and many questions. The estimate is based on the extrapolation of the trend in the economy's complexity and the corresponding critical complexity and is illustrated below:

One question that has been raised is the following: In the above trend, what is the contribution of the 15 core members and of the 12 new economies that have joined the union since 2004? The answer is apparent in the two plots below:

Two considerations may be made:

1. In the case of the 15 core economies, the peak of the crisis (i.e. when complexity starts to drop, indicating a shrinking economy) coincides with Q4 2007. In the case of the 12 new member sates, this peak is to be found 4 quarters later. Hence, there is a one-year delay between the two groups of economies. The dynamics, however, is very similar.

2. The rate of complexity reduction (shrinking economy) is considerably lower for the 15 core economies than in the case of the 12 new members. This is consistent with the 1-year delay between the two groups of countries. In other words, if things don't change too much, whatever happens to the 15 core economies, will happen to the remaining 12 approximately one year later.

Given the very low resilience of the structure of the economy of the EU today, one thing is clear: the EU is not in the condition to welcome new members unless they bring plenty of cash.

A full and detailed report of the Structural Resilience of the EU Economy is available for purchase here.