There are multiple sources of uncertainty. First and foremost, the war in Gaza, which does not look like it will be ending any time soon. The military response to the brutal Hamas attack of 7 October 2023 was arguably inevitable, but the levelling of the Gaza Strip will neither restore stability to the region nor ensure Israel’s security. Deeply divided internally, Europe has proven incapable of taking positive action, and has resigned herself to watching on from the sidelines.

The war in Ukraine is another source of uncertainty. Its continuation not only endangers Europe’s energy security; it is also a reminder of the constant threat Russian aggression poses to peace and democracy everywhere. Hungary vetoed military aid to Ukraine at the recent EU summit (14–15 December 2023), while Ukrainian President Volodymyr Zelensky’s visit to Washington (12 December 2023) failed to convince the Republican majority in the House of Representatives to release funds for continued US support to his country’s war effort. However, the unanimous decision taken by the leaders of 26 Member States (made possible by Hungarian President Viktor Orbán abstaining) to open accession negotiations with Ukraine was a strategic defeat for Russian President Vladimir Putin. Furthermore, it brings closer a future agreement for a just end to the war, which might involve Ukraine agreeing to painful territorial losses in exchange for security guarantees against Russia. EU membership is one of these guarantees.

Next year’s most crucial contest for the future of Europe will be the US presidential elections (5 November 2024). Until now, the security and prosperity of Europe has relied on the NATO umbrella and US defence spending. The prospect of a possible victory for Donald Trump next November shows that US support cannot be taken for granted. In the near future, ensuring the inviolability of European borders will depend on the sacrifices (only financial, one hopes) of Europe’s citizens themselves. As long as the strategic autonomy of the EU remains a distant aspiration, democracy in Europe will be at risk.

Of course, European citizens have no say in the US presidential election, but their vote in the upcoming European elections (6–9 June 2024) will determine the make-up of the European Parliament. The current majority (Christian Democrats, Social Democrats, Liberals, and Greens) often disappoints, and is frequently criticized from all directions. Still, the alternatives seem worse. The victory of the democratic coalition led by Donald Tusk in the recent Polish elections (15 October 2023) shows that the attempt of far-right populists, enemies of Europe and friends of Russia (and China), to change the balance of power in Europe is not a foregone conclusion.

If geopolitics (and simple politics) affects the European economy indirectly, EU economic policy has a direct impact on it. The revision of the Stability Pact will define the framework within which Member States conduct their fiscal policy. To date, the indications are far from encouraging: the return of rigid rules (with exceptions) does not provide a real incentive for national governments to combine fiscal stability with sustainable growth through productive investment. On the other hand, for the time being, the ECB’s monetary policy seems to be oriented towards maintaining the current interest rate in the Eurozone (4.5%). The European Commission’s latest forecasts (15 November 2023) foresee inflation in the EU falling to 3.5% in 2024 (from 6.5% in 2023). The cost of relatively high interest rates is the weak growth of the European economy (1.3% in 2024, up from 0.6% this year).

The outlook for the Greek economy in 2024 is positive: GDP growth will be higher (2.3%) and inflation lower (2.8%) than the EU average. On the other hand, despite a slight fall in both, unemployment (10.7%) and debt (151.9% of GDP) will remain high.

The same applies to the external deficit, which though lower than last year remains the highest in the EU (-6.6% of GDP in 2023). Notably, both Spain and Portugal—which, like Greece, reported huge external deficits prior to the crisis of the 2010s—are now running sizeable surpluses (+2.5% and +1.6% of GDP respectively).

The persistence of the external deficit highlights the difficulties the Greek economy faces as it strives to pull free of the trap of cheap growth, and its specialization in low-productivity activities paying low wages and producing goods that are barely competitive in international markets. The much-anticipated upgrade of the country’s productive model remains beyond the country’s reach.

*Manos Matsaganis is Professor at the Polytechnic University of Milan,  A. G. Leventis Foundation Senior Research Fellow and Head of the Greek and European Economy Observatory at ELIAMEP

This article is part of the annual Special Edition “ELIAMEP Outlook – Predictions for 2024”, where ELIAMEP’s leading analysts and associates share their predictions for the year ahead. They assess the main challenges, trends, risks, potential opportunities and inflection points of 2024 for Greece, Europe, the Mediterranean and the world.