Europe’s chronic disease

Europe’s chronic disease

Zero growth in Europe in the second quarter of 2014 came as a big surprise to economists and forecasters. Even Germany, Europe’s economic engine, showed negative growth, and sovereign debt is increasing in the eurozone in spite of ‘austerity’, writes Prince Michael of Liechtenstein.

GIS expert Professor Enrico Colombatto has highlighted Europe’s underlying problems in a number of reports and I highlighted the futility of the central banks’ policy of easy money on July 31 with ‘Money makes the world go round’.

The economy will not restart with cheap money alone. Cheap money can misallocate capital in the economy and provide governments with less urgency to balance their budgets as debt is cheap, unpopular reforms are delayed and economies continue to weaken.

Monetary measures can be used to ease cyclical problems but today’s structural problems have to be addressed by real reforms.

Europe’s politics are too weak for that. They are too weak at national and European levels. GIS has raised these problems in our statements. Deregulation and reducing the share of government is needed and both are not populist and run counter to the micro-interests of established political parties.

The current lack of growth does not even reflect the influence of Russian sanctions. Whether the sanctions imposed on Russia will have a sizeable detrimental impact on Europe’s economies is unknown. It is part of the inconsistency of European politics to impose sanctions without thinking through the consequences.

Jean-Claude Juncker, the President-elect of the European Commission says resetting the eurozone economy is his priority.

The agenda for Europe 2020 - the European Commission’s 10-year strategy proposing measures for growth and to fight unemployment - is full of beautiful words which are unarguable. But it lacks real reforms which will unleash sustainable business to lead this growth and create sustainable employment. Fitter and looser labour laws with less costly bureaucracy and red tape are what are required.

The words ‘smart’, ‘sustainable’ and ‘inclusive’ are central to the agenda’s vocabulary, but will they solve the eurozone’s economic problems? I am afraid real and effective measures will stumble in the micro-world of party interests.

The long-term effect of this lack of statesmanship will be catastrophic. Unemployment will not improve with all the ghastly consequences for society and the individuals concerned. Poverty, mainly among the elderly, will increase. The purchasing power of pensions will be reduced as the economy fails to sustain them. Innovation will be limited and the brain drain - the emigration of talent from Europe - will continue.

It is saddening for me, a convinced European, to feel compelled to highlight again and again Europe’s weaknesses.

Related reports

The impact of sanctions on the Russian economy

Italy faces a new economic and political crisis

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