Europe faces electoral and policy crossroads

Sun Feb 9, 2014 7:11am EST
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By Mike Peacock

(Reuters) - The threat to its survival may have passed but the euro zone faces electoral and economic crosswinds this year which could push it to break policy taboos while challenging its ability to do so.

The threat of deflation is stalking the currency area and increasing pressure on the European Central bank to act.

Anti-euro parties look set to perform well at elections to the European parliament in May and could hamper the bloc's ability to enact measures to bind its member states together more closely.

Euro zone leaders are still struggling to generate solid economic growth that can eat away at unemployment rates running at 25 percent and more in the hardest hit countries, and efforts to create a banking union to prevent a future financial crisis are widely viewed as having fallen short.

The bloc will also try to get Portugal and Greece back on their feet after Ireland successfully exited its EU/IMF bailout. Athens is likely to need more help to do so.

Italy remains a potential flashpoint. Efforts to reform its electoral law to allow for a more stable government in future, one that can push through much-needed economic reforms, will be critical for it and the euro zone this year.

French President Francois Hollande's ability to push through his own labour and pension reforms in the face of rock-bottom popularity ratings is also a focus.

Then there is the question of Britain's place in the EU. Prime Minister David Cameron has promised an in-out referendum in 2017 and is seeking to renegotiate Britain's terms of membership first. There is little sign that his EU partners are willing to play ball.   Continued...

European Central Bank (ECB) President Mario Draghi speaks during the monthly ECB news conference in Frankfurt February 6, 2014. REUTERS/Ralph Orlowski