Europe’s economic pain is expected to worsen before it gets better, potentially boosting the popularity of populist leaders and the need for more action from the European Central Bank (ECB), analysts have warned. While the International Monetary Fund upgraded its global growth forecasts at the end of January, it said the outlook for the eurozone had deteriorated. The Fund cut its growth expectations for the region by one percentage point to 4.2 percent this year.
Germany, France, Italy and Spain — the four largest economies in the euro area — all saw their growth cut for 2021.
According to estimates from the ECB, the eurozone economy could have contracted by more than seven percent in 2020.
Erik Nielsen, group chief economist at UniCredit, told CNBC’s Squawk Box Europe: “Europe is in a deep hole. The pandemic is very uncertain, the rollout of the vaccine is frankly disappointing in Europe and therefore the risk of a deeper hole is there.”
As many fear the gloomy outlook could mean the end of the eurozone in the near future, a 2011 interview with famed investor Warren Buffett has resurfaced, in which he brilliantly explained why he thought the EU could not overcome the debt crisis.
He said: “I don’t know what is going to happen.
“I do know that the 17 countries that joined the EMU gave up the right to print their own money.
“That was a huge, huge decision and I hope the US never does that.
“It changes the whole game. They linked themselves, giving each other their credit cards and said, ‘Let’s all go out!’
“And some behaved worse than others.”
Mr Buffett added: “It is very complicated because you have to decide one of two things.
“You either decide that some members are actually going to get their act together in a very major way.
“Or basically, the very strong countries like Germany have to say, ‘I am willing to take care of my brother-in-law, who has been using my credit card.'”
When asked what the consequences for the US and Asia were, Mr Buffett said: “I don’t know the answer to that.
“I don’t think they are necessarily extremely dire.
“There will be consequences but I don’t think Europe will go away
“It just can be a kind of an economic mess for a while.”
That was not the only time Mr Buffett made comments on the eurozone that year.
At an event organised by Junior Achievement, a non-profit that teaches children about business, Mr Buffett said of the euro: “That is something I would have not done… in terms of linking 17 countries to a single currency.
“Just imagine if 10 or 15 years ago I had proposed the US formed the Western hemisphere currency union.
“We would have taken Canada and that would have probably been okay.
“But then we would have taken Mexico, Peru, Ecuador.
“And would that sustain itself if they follow different fiscal policies and have different cultures?”
Mr Buffett added: “It [the eurozone] was a great experiment, I am not so sure it’s that workable without either coming closer together or reconfiguring in some major way.”
Mr Buffett is a famed American investor, business tycoon, philanthropist, and the chairman and CEO of Berkshire Hathaway.
He is considered one of the most successful investors in the world and has a net worth of over $85.6billion (£61bn) as of December 2020, making him the world’s fourth-wealthiest person.