THE EUROZONE SLOWDOWN IS MORE PROBLEMATIC THAN THE GLOBAL ONE
The problem of the Eurozone is threefold:
- Demographic,
- High state- and fiscal-interventionism, and
- Lack of technological leadership.
- If we add the political risk of some governments who want to penalize high productivity sectors while subsidizing those of low productivity, we have an economic challenge that will not be solved with liquidity injections and low rates.
- With rates at zero and almost 1.8 trillion euros of excessive liquidity, the problem of the European Union is not the moderate global slowdown. It is perpetuating a rigid, intervened and extractive model.
The United States or the United Kingdom have buffers to face a slowdown. Most Eurozone countries are dangerously ignoring it and, even worse, proposing large government spending and high taxes as the “solution”.
You read that the slowdown is due to temporary factors. It is not.
CONCERNS IN EUROPE:
- The European Union has completely abandoned its reform agenda to bet it all on the mirage of monetary policy, while economic, demographic, state and political risks rise.
- Other than Germany, in the rest of the Eurozone the fragility of the economies is linked to both fiscal imbalances and excessive interventionism that make them more vulnerable to a change in the cycle.
- In France the word “crisis” appears on the front page of newspapers and economic programs as a real possibility. The entire country is aware that the slowdown is severe and tax reductions and measures to strengthen economic performance are announced.
- In the periphery, countries must be aware that they have exhausted their fiscal space and acknowledge their vulnerability to a modest change of cycle.
- The OECD index of leading indicators already shows a negative figure and the leading indicators published by the Ministry of Economy also reflect more than ten in negative territory.
That’s why the Eurozone should be more prepared. Because most countries do not have the capacity that others have to confront a slowdown.
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SOURCE: 04-20-19 - Daniel Lacalle - "The Eurozone Slowdown Is Worse Than The Global One"
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