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October 22, 2024 - 10:00am
Last weekend Boštjan Vasle, Governor of the Bank of Slovenia, warned traders not to read too much into the European Central Bank’s recent back-to-back interest rate cuts. Amid investor expectations that interest rates will fall sharply, Vasle said the bank’s easing did “not automatically mean that we will now act at every meeting”.
His caution echoes similar statements by US Federal Reserve governors, who have also told markets not to get too excited about the future course of rate cuts. With the American economy still buoyant, too swift a fall in interest rates could further swell demand, leading to a resurgence of inflation. With investors anticipating an even steeper set of cuts than the Fed has signposted, dulling their ardour thus appears sensible.
Yet it sounds a bit odd coming from a European voice. The continental economy is anything but buoyant, making a resurgence of inflation seem a distant prospect. Although there are pockets of relative dynamism, particularly in Eastern Europe, the big anchor economies of Italy, France and Germany are all struggling, with the last of the three now in recession. Meanwhile, sandwiched as they are between an increasingly protectionist United States and an aggressively competitive China, its exporters are having a hard time holding onto global market share, making an export-led recovery seem a distant prospect, at least for now.
Nor is there any reason to think things might change much soon. Although Mario Draghi, formerly ECB chief and ex-Italian prime minister, produced an impressive report last month suggesting ways the EU could use industrial policy to revive the economy, it may sit on the desks of the major capitals. The two big beasts, France and Germany, are saddled with weak governments whose clock is running down, making it improbable anyone will want to pilot the Draghi proposals through the continent’s delicate diplomacy.
Further reinforcing the policy inertia is the rise of radical populist parties, which is slowing the pace of change. The need of increasingly fragile governments to keep the populists at bay is making them even more reluctant to make the sweeping economic reforms needed to revive growth. French President Emmanuel Macron tried creating a more business-friendly economy with some bold reforms. Look where it got him.
All told, there’s little reason to expect the sort of demand-led inflation that the Fed is concerned about could resurface in Europe in the foreseeable future. However, the risk may not lie in the economy but in the continent’s febrile politics. Indeed, it may be with one eye on the populists that Vasle has aired his concerns. Like almost all developed economies, Europe’s population is ageing — which means it relies on immigrants to supplement what would otherwise become a declining workforce. Restricting immigration, a non-negotiable for the populists, would thus slow and possibly reverse economic growth.
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SubscribeGDP ‘growth’ from ‘immigration’ = Ponzi scheme zombie growth
Yes. It’s extraordinary that people like this writer keep trotting that formula out – given how completely it has been debunked.
Rapley believes in unlimited immigration.
So would you if it was making you rich and you had zero sense of social solidarity.
In Rapley’s case, I think it’s ideological i.e. Utilitarian, like Gus O’Donnell for example.
Perhaps the Elite are so indifferent to the concerns of the populace that they only care about things of interest to themselves?
It’s not that the populists ‘are emerging’ it’s that the Elite tide has receded exposing what what always there but previously hidden.
Quite an achievement to write an article like this without mentioning the euro.
You’re right its all the populists fault. Not the continuing deindustrialization by insane green activists who want to cut all manufacturing to the bone. No it’s those evil right wing populists like the AdF that haven’t ever been in power causing the problems. It was those evil right wing hate filled bigots that caused Germany to become completely reliant on Russian gas and shut down all their nuclear plants. It’s the right wing extremists causing the massive economic contractions by off shoring all actual production to eastern dictatorships and slave states.
And they are a clear and present danger to our democracy after all they’ve captured all of the important institutions except you kno: the media, the national governments, the local governments, the economic sector, the supranational governments, the NGOs.
Actually thinking about it the only place the populists seem to have actual power is in the heads of people who seem to think they are making good points, despite what those in Brussels want them to believe.
Profesor David Miles (Imperial/OBR) has blown rhe immigration contribution argument out of the water. An immigrant has.to.earn.minimum £48k pa to be a net contributor. All below this level cost the country money, taking more out of the system than they put in. Given the median salary In the UK is.£34.5k, we clearly require an elite immigration strategy to hit the breakeven metric. The popular vote will continue to thrive – the data supports their position.
The “problem” European countries have are their insane, illegal and self-harming “sanctions” policies. They deliberately cut themselves off from lucrative markets for their products and from the reliable source of their cheap energy.
So invested are they in these idiotic policies that they cannot reverse themselves. It is this refusal to recognise the source of their predicament, let alone do anything about it, is giving rise to alternative political parties, by no means all of them “radical populist”.
There was a lively discussion on Unherd yesterday about the exodus (or otherwise) of milionnaires from the UK. The big.money has diversified money and property across different continents – the sanctions suggested they were insufficiently hedged.
The problem is the single currency. It was the most disastrous decision taken by the EU since 1957 although the competition is stiff, with the handling of the Ukraine War challenging for the top spot. Both decisions will have to be reversed, as a start, but Europe’s problems won’t end there.
If population growth is the key to economic growth and future prosperity, why not invite Africa to join the EU. Err, problem solved.