Europe Sliding Into Irrelevance High debt, no innovation, and no opportunity paint a grim picture. Draghi's QE will solve nothing


WASHINGTON – Here is today’s Europe. Stagnating economies, non-existent innovation, high debt caused by unaffordable pensions and other entitlements, and educated young people going away in search of opportunity.

Old societies

And there is more: high unemployment, especially for young people, and declining birth rates. Combined with the slow but steady drain of the most ambitious within the new generations, declining birth rates (below replacement levels in all of Europe, with the exception of France), mean frail societies dominated by senior citizens whose main preoccupation is not investment in the future but collecting pensions.

Generous pensions  and other entitlements were pledged by politicians  who over promised, thinking that the money to pay for future benefits somehow would materialize.

Immigration from Africa

If you think this is bad enough, sorry to say that there is more. Yes, add to this depressing mix the steady inflow of desperate illegal immigrants from North Africa, Sub-Saharan Africa and the Middle East. They escape from poverty, wars  and political chaos, hoping to find something better in Europe. This is not a massive wave, but a steady, daily drip-drip. Tens of thousands arrive every month, and this has been going on for years, with no end in sight.

Now picture this. Italy has zero growth and high unemployment (above 10%). Youth unemployment is about 40%, and around 60% in the South. And yet now the same tired, over stretched and impoverished Italian state has to provide for thousands of new illegal immigrants who sail daily from North Africa, landing in Sicily. (So far, 20,000 new arrivals in 2015).

And what can these poor migrants, (many of them women and children), add to a semi-comatose Italian economy? Nothing. Absolutely nothing. In fact, they represent a new cost. They are poor, illiterate, and unskilled. On top of that, a majority of them are Muslim, this way adding another layer of complexity to the already impossible task of integrating millions of aliens into a new society.

We have a strategy

In all this, there is an amazing degree of wishful thinking in Europe that has now passed the threshold of collective insanity. Here is the plan, the smart (and painless) strategy to get out of all this.

“No worries. Mario Draghi and the European Central Bank, (ECB), have got this thing under control. You see, they have launched Quantitative Easing, (QE). And this clever remedy works practically like a (free of charge, mind you!) Elixir of Long Life.

All of a sudden –Puff!– interest rates are down to zero, And this magic remedy means that (essentially broke) governments now and going forward can keep borrowing, since the cost of servicing new debt is down to nothing. 

Therefore, this QE Elixir means that we can keep on ignoring the fiscal disasters caused by monstrous and totally unaffordable welfare states. As long as we can issue more bonds, all is well. We shall pay pensions by issuing more bonds. This is a really smart policy, and it will work wonders.

Yes, we may concede that Greece overdid this a little bit. But everybody else will be fine. Italy’s national debt is now 130% of GDP? Totally manageable. France’s economy is semi-comatose? Wait for QE to work its magic.”

No reforms

While delivering his monetary cocaine, Draghi did also say to the EU policy-makers that they should get serious about realistic new fiscal policies, and pro-growth legislation. But the policy-makers have gladly taken the QE cocaine dished out by the ECB and ignored the warnings.

In all this, Europe is not going to go down in flames, in the midst of financial chaos and political unrest. No, just like on old person afflicted by a variety of serious, but not lethal, chronic diseases, Europe will shrivel, and slowly slide into irrelevance.


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