Thursday, January 29, 2015

Europe's Economic Problems Due To Anti-Business Policies

The US has economy has grown much faster that the eurozone economy since 2000.  This article reflects the views of some in Northern Europe who believe that structural issues in Southern Europe are the root cause of anemic growth in the eurozone.  High unit labor costs have made the eurozone uncompetitive in the global economy.  Even Germany has a competitive problem.  Its unit labor costs are also too high in the competitive global market.

Although, the eurozone may have some structural problems, the evidence used to support the lack of competitiveness hypothesis is faulty.  One of the graphs in this article shows that the eurozone economy was growing rapidly between 2000 and the beginning of the financial crisis in 2008.  GDP growth in the eurozone, and in the US, fell dramatically at the onset of the recession, but growth in the eurozone has been much slower than it has in the US.  I would assume that the structural and competitive issues described in this article existed during the period of rapid growth prior to the recession.  Consequently, its hard to argue that they only became a problem after 2008.  Moreover, much of the trade by members of the eurozone is between other nations in the eurozone.  Northern Europe's competitive advantages over Southern members of the eurozone did not accelerate at the onset of the financial crisis.  The eurozone, as a whole, is still suffering from the damages done to its banking system by the collapse of the real estate market and a huge decline in domestic demand.

The US economy has rebounded faster from the recession than the eurozone.  Is that because the US businesses became more competitive in the global economy than they were prior to the recession?  The modest US recovery has been led by a rise in domestic demand, and not by a rapid increase in exports.

No comments:

Post a Comment