Uneven Recovery, Debt Worries Cloud Europe's Outlook

Recovery continues in Europe but with big differences across countries in the region

European integration is delivering efficiency gains and stronger competitiveness

Better integration of European equity markets should be next step

The main challenges facing policymakers in Europe include the sovereign debt problems in Greece, Portugal, and Ireland, and the lack of progress in dealing with undercapitalized banks across the continent. In an interview, the director of the IMF’s European Department, Antonio Borges, discusses the main findings of the report.

IMF Survey online: How would you characterize the IMF’s outlook for Europe?

Borges: Although there are still plenty of challenges, the main message of the outlook is one of quiet confidence. Europe is doing well overall―both Western Europe and Eastern Europe―and our projections for the forthcoming months are actually quite positive.

However, at the same time there are big differences across Europe. Some countries are doing very well. Others are still growing modestly, and we are concerned with that.

IMF Survey online: Some of the countries in core Europe and in Scandinavia that are doing particularly well have seen their recoveries driven largely by exports. Will that continue?

Borges: One of the most surprising elements of the outlook for Europe is, indeed, the export performance of some of the core countries. Of course, Europe is benefiting from the general growth that is taking place throughout the world. But it also proves an important point: European integration is delivering efficiency gains that some countries are taking advantage of. Many European countries are now reorganizing their operations, using bases elsewhere in Europe to be more effective, and in that process they become more competitive. This is a source of strength.

IMF Survey online: The IMF and European Union have just announced a support package for Portugal. Do the problems in Greece, Portugal, and Ireland threaten the recovery that is under way in the rest of the European Union?

Borges: The bad news is that there is still uncertainty with respect to these countries. The good news is that, today, there are programs underway, and there is a good chance that they will be successful, provided they are implemented as agreed. So if things remain on track, we will be able to manage this crisis, which after all affects only a small number of relatively small countries.

IMF Survey online: There is a still a...