WASHINGTON – With all the excitement surrounding the Greek debt farce, (yes, it is mostly a farce), most observers are pretending not to notice that at least half of Europe is in a state that can only be called terminal economic stagnation, eventually leading to decline.
All is well
It is pathetic to watch pundits on TV telling us that, unlike Greece, Spain and Italy have courageously embraced reforms and now –what do you know– they are doing a lot better.
Which is to say that if only the Greeks would follow the example of their enlightened Mediterranean neighbors, all of Europe would get back to prosperity.
Progress in Italy ?
Well, let’s give a closer look at this praiseworthy progress. Here are the IMF macroeconomic projections on Italy. After a ritual acknowledgment of Italy’s efforts to improve its fiscal outlook while reforming somewhat its labor markets, the IMF projects that in 2015 Italy’s GDP will grow by 0.7%, its unemployment rate will be at 12.5%, while its national debt will be equal to 133.3% of GDP. Impressive, no?
By 2020 on account (we assume) of the impact of targeted reforms promoted by the no-nonsense Renzi government growth will be 1%, unemployment will be “down” to 10.7% and the national debt will be “only” 122.9% of GDP. Got that?
Growth that may be approaching 1% is actually impressive according to the analysts, while unemployment above 10% is swell, (not to mention that youth unemployment is about double that, while in the south of Italy it reaches 40%).
The new normal
Well, this is what passes for healthy recovery, these days. And this projection of course excludes recessions, downturns or other crises.
So, here is the picture of Europe painted by the experts. Greece is doing poorly because it is unwilling to recognize its serious predicament. But –hey– Italy is making real progress thanks to its smart leaders, while in Spain unemployment is rapidly going down. Really? The last time I checked unemployment in Spain was well above 23%, while youth unemployment is “down” from 53% to 49%. This tragedy is in fact presented as good economic news. Have we gone totally mad?
The truth is that, while Italy did not jump into the Greek abyss, it is a country in terminal decline. And so is Spain and Portugal; while stagnating France is flirting with the idea. And up north Finland is not doing well, while the Balkan EU countries do not give any reason for rejoicing. No, there will be no Croatia economic miracle. And do not hope that the Bulgarian economy can grow more than 0.9%
So, here is the real story. Greece is an almost comically extreme case; but a large chunk of Europe is essentially in decline. And why is that? Well, it is the compounded effect of statist policies, unaffordable entitlement programs and falling birth rates, combined with structural disincentives to investments in innovation, enterprise and ultimately growth.
What is worse is that this decline is denied. In fact, the experts tell us that because of intelligent pro-growth reforms and the beneficial effects of quantitative easing administered by the European Central Bank, Greece aside, thing are mostly back to normal. Really?
When analysts tell you that all is well when Italy, a supposedly modern industrial country, is projected to grow at a 1% rate in 2020, that is 5 years after the implementation of intelligent reforms, while carrying a national debt that will stay well above 100% of GDP in eternity, then we have entered a new era, an era in which idiotic wishful thinking passes for sound judgment.