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Alasdair
Macleod: Europe is in Worse Shape Than Everyone Thinks
From
his perch in the United Kingdom, Alasdair Macleod provides an update
on the ongoing economic crisis in Europe, which -- while largely
absent from headlines in the US of late -- continues to worsen.
Due
to bloated state-run programs and extreme malinvestment, EU
governments find themselves in a box. Economic growth has stalled,
and no amount of intervention seems able to get it going again. So in
order to keep their economies moving forward, they are becoming
increasingly rapacious in extorting tax revenues from wherever they
can find them.
This,
of course, is strangling the private sector -- on which the
government is counting on to grow the EU out of its recession (or
depression, depending on which country in which you live). And so a
vicious cycle ensues. Growing taxation reduces economic activity,
unemployment worsens, the wealthy expatriate -- all leading to a
declining income base to tax, and growing civil unrest.
These
are desperate times. And the EU governments are taking increasingly
desperate, and reckless, measures:
The Keynesians don’t understand why the growth isn’t there. They are very, very disappointed. And of course, their response is, the economy is not flourishing. You have to stimulate the economy more. The fact of the matter is that the average government size in the economy in the Eurozone is 50%. So 50% of every transaction is government.
Now that only leaves the private sector of 50%. The private sector, when it comes to recovering (recovery?), is carrying a huge weighted burden on its back. That burden is trying to tax the private sector horse who's carrying it. The tax burden is so great, the way in which they are doing it in most of these countries is that they are trying to preserve the public sector ,and they are trying to get the private sector to pay for it. The result is that there is no way there is going to be any growth at all.
If you look at countries like Spain, for example -- which has come out of this massive property bubble that's really been the reason for its downfall -- the property bubble has not unwound at all. You've got huge great levels of malinvestment, misdirection of funds in the wrong direction, the market has changed, people don’t want it anymore, and the market has got to adapt. And taxes are not going to be forthcoming until it has happened.
Unfortunately, governments have gotten themselves stuck into this position where they are not prepared to cut their spending enough. They think they can get taxes by taxing the rich, ratcheting up the taxes on anyone who you think has got any money -- but then people avoid it. Like in France, they just go abroad. It is that bad.
We are not seeing any recovery. The burden on private sector is far too great for that recovery to occur. Not only that, but the economies in the Eurozone are angled towards the wrong production. It is a huge great burden of malinvestment that needs to be addressed. You are not going to get any meaningful economic recovery without that slump happening.
Given that the slump is going to happens, you’ve got a choice: Either you get it over and done with and get it done quickly, or you have financial repression in the hope that over a long period of time something will turn up. Really, they are going for the latter rather than the former. But I don’t think they have got that much time. One of the things which Europe really does have a problem with is pension costs and the cost of health care for the elderly and all the rest of it. You think it is expensive in America; it is twice as expensive in Europe, on average.
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