March 29, 2024 - 7:00am
Doomsday scenarios are in high demand in Europe these days, which is understandable when there is no dearth of bad news coming down the wire. Forecasts for German economic growth were revised downwards once again this week, with expectations now at a meagre 0.1% GDP growth. France, the second-largest economy in the European Union, has apparently lost all control over its public finances and possesses debt levels exceeding 100% of GDP, a problem also faced by Greece, Italy, Portugal, Spain and Belgium. Put simply, some of Europe’s major economies are on an unsustainable economic trajectory, with a growing gap between government spending and revenues.
There are, however, some reasons for optimism. Poland, for example, has experienced a three-decade-long “economic miracle”, during which GDP more than tripled; if measured per capita, it almost quadrupled. This is a unique success story which does not receive the attention it deserves, largely because Left-leaning Western politicians are afraid that the economic success of a deeply conservative country could strengthen their domestic competition. Nevertheless, it shows that economic growth is possible — even in the often sclerotic EU.
Poland isn’t alone in this success. Sweden has tied state pensions to overall life expectancies, thereby ensuring assets will exceed liabilities in the national pension system. Meanwhile, Denmark enacted a governing reform in 2007 which reduced the number of municipalities from 271 to 98, with no municipalities representing fewer than 20,000 citizens. This allowed the Copenhagen government to make public services more efficient and fiscally sustainable.
The growing worries that Europe is heading for a renewed financial crisis are justified, but there are clearly a number of possible solutions which are already being pursued by smaller EU member states. One key problem is the inability of Paris and Berlin to address the decline of their domestic economies, and the unwillingness of Emmanuel Macron and Olaf Scholz to address the mostly homemade causes.
Bureaucracy and regulations need to be slashed, not expanded, in order to create incentives for capital formation and innovation. Retirement ages need to rise, especially since failed immigration policies which have mainly attracted unskilled labour will not solve the demographic time bomb coming for the pension systems. Finally, people need to be incentivised to work and not rely on government largesse — an issue that has been exacerbated by the current coalition government in Germany.
The economist Herbert Stein coined Stein’s Law, which states that “if something cannot go on forever, it will stop.” The question facing Europe is not whether reforms will come but when, as the current trajectory cannot go on forever. As we have seen, some countries have already begun the necessary course corrections. Now it is up to the rest to follow.
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SubscribeA Great Deal of Ruin in a Nation. Adam Smith.
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It’s hard to see a way out for France. The habits of state dependency and hatred of the market are too deeply ingrained. Germany, where there is at least a constituency for reform, will eventually recover from the stupidities of the Merkel regime. In the end Poland and the non-euro states will dominate.
Hasn’t Poland been in receipt of vast EU subsidies for a long time though, as well as remittances from thousands of workers they’ve sent abroad? It would almost be harder not to grow the economy with that amount of money flowing in. How well will their economy fare once all that stops is the question
We Irish contributed to that flow of money in no small way.. we paid very generous children’s allowances to Polish men and women working in Ireland even though their children never accompanied their parents but instead stayed in Poland where granny lookafter them.. I didn’t resent that by the way but clearly Polish children living in Poland were hardly an asset or an investment into Ireland’s future. But Ireland is a rich country.. we could afford it and their young adults did contribute hugely to Ireland’s economic growth after the ECB screwed us into the floor in 2008! So good luck to the Poles I say.
Ireland is not a rich country. It is a country through which a lot of money flows, from which the Irish get to skim off the top. There are very few successful Irish companies, let alone industries.
Ireland is a tax haven, and until very recently was a beneficiary of EU largesse themselves.
This success of Poland’s is surely partly attributable to starting from a very low post-Soviet base, with a youngish population, and inward immigration from other, less dynamic Eastern European states.
But credit where credit’s due; they could have screwed it all up and have instead proved themselves to be admirable grafters and entrepreneurs without the ‘benefit habit’ of Western Europe.
Here’s another article on France that agrees with your take. A lot of details and I can’t verify them but the trend is clear
https://mishtalk.com/economics/expect-a-financial-crisis-in-europe-with-france-at-the-epicenter/
You’re giving the term “simplistic” a bad name!
All the high growth Eastern European nations like Poland and Hungary which have been net beneficiaries of EU subsidies for decades will become net contributors if they are outdoing the established economies. Ireland is already now a net contributor. It is even possible that they will be forced to shell out soon to for example Italy soon. That would be absolutely hilarious – I would like to see how they react when that happens. As Faust knows, deals with the devil come with a pricetag.
Why should Sweden and Denmark carry the can ? Have they always been contributors ?
Ireland, Poland, there’s less argument as they must have received their due of support before. Particularly Poland.
I very much doubt that, even should France and/or Germany wish to reduce bureaucracy, that Brussels will enable that to do done easily. It’s just not the EU way.
Stein’s Law is genius isn’t it? ..eh, no. I think he nicked it from Newton, don’t you?
” The question facing Europe is not whether reforms will come but when, as the current trajectory cannot go on forever. ”
I beg to differ, you are assuming they will reform before a ‘crash’ … with coalition Govts that is highly unlikely.
a country tends to do well if people are free to enterprise and free to succeed or fail, but they need to guarantee that they can benefit form a justice that will uphold the laww that will make enterprise possible and treats all in the country as equals…. hence, all corruption causes poverty for many (and money for a few). question: how free are we really in europe to enterprise? and how just is justice….? for all …?
Yes, but the question is: what happens when a population that is dependent on welfare runs out of money – including all the State employees administering the welfare? It will not be peaceful.
Climate change lunacy and anti-capitalist socialist policies is what’s bringing down governments. When governments decide a direction of travel and force business and consumers to adhere, through regulation, it stifles competition and innovation.
Repeal climate change and ESG legislation, reduce the size of the state, and stand back. Growth will flourish.