Russian Economic Development Minister Andrei Belousov believes the European Union economy has made it through the most difficult period and will begin to pull out of recession by the end of next year.
"It's very likely that the most difficult period over. The decisive moment, in my view, was when the European authorities corrected the situation at Spanish banks in time," Belousov said in an interview with business daily Vedomosti published on Thursday. "If that had not happened, the situation would have become irreversible. Of course, the level of bank lending to the real sector in the EU remains fairly low and it's still unclear how to break the trend of growing government debt."
"But nonetheless, the situation in the banking sector has relatively normalized and I believe that by the end of next year Europe will begin to come out of recession," he added.
He said that one of the lessons from the crisis is that one "should not get carried away with budget consolidation at the expense of economic growth."
"This is quite apparent if one compares the situation in the United States and Western Europe. In Europe, bets were placed on budget consolidation. However, almost all experts, including in the IMF already, note that the European authorities underestimated the negative impact of budget consolidation on the rate of economic growth. The hypothesis that tightening government demand would lead to the expansion of private demand in conditions where markets are virtually not growing turned out to be mistaken," Belousov said, thus also explaining his ministry's proposal to ease the so-called budget rule in Russia that limits the use of oil and gas revenues.
The United States pursued a different course of action than in the EU.
"There the non-oil and gas deficit is about the same as in Russia - about 10 percent of GDP, and they also want to narrow it. But note: Both the administration and the Federal Reserve System pursue a balanced policy of supporting economic growth. Not pumping money into the economy, but supporting key segments of the market. Plus a policy to reduce risks. The Fed buys up $40 billion worth of mortgage securities per month and is implementing a program to restructure short debts into long ones. The result is confidence on the part of businesses; the level of business activity is more than 50 points; the level of capacity utilization is essentially pre-crisis," Belousov said.
He said the U.S. has now moved to strategically more advantageous competitive positions compared to Europe. "Their gas and electricity prices are about two times lower than in Europe, labor costs are not growing," the minister said.
He said that developed countries, "by solving the tactical problems of the crisis, are essentially creating a new model for long-term economic growth."
"The main battle was in the area of technology. Virtually all countries, despite a general reduction of expenditures, are increasing spending on support for technological development. This applies to Europe, and to the U.S. and China. We, on the other hand, have sharply cut spending on technological support, although there is a decision to resume it next year," Belousov said.
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