The EU is on life-support, and the doctors are clueless
Europe’s heart has stopped. It has ground to a halt, with zero growth in the second quarter. In Italy it is worse: the economy effectively has not grown since it joined the euro. The cure is obvious, but the Eurocrats only care about themselves
The problem with being ruled by the unelected is not just that they do not necessarily rule in the interests of the people they serve, but that they have no incentive to find out what those interests are.
Another opportunity to do something about the appalling economic condition of Europe was missed at the recent meeting of the European Central Bank (ECB). Mario Draghi, ECB president, announced a couple of ineffective measures to be introduced at an unspecified date and said that individual countries had to introduce reforms.
Yes, yes, yes. He’s right: many countries, in particular in southern Europe, need to change; to open up their markets, tackle vested interests. We hear repeatedly of individual horror stories such as that headache pills are twenty times the price in Italy as in England, because the Pharmacy lobby prevents them being sold in supermarkets and operates an illegal minimum pricing rule.
But if someone’s heart has stopped, yes, he needs to lose weight; yes he needs to give up smoking; yes he needs to take more exercise, but what he needs right now is a shot of adrenalin.
Eurostat, the EU statistics office, has now confirmed that Europe’s heart has stopped. It has ground to a halt, with zero growth in the second quarter. In Italy it is worse: the economy effectively has not grown since it joined the euro.
The figure of one in eight unemployed masks the fact that in parts of the south there are towns and villages with hardly anyone in work except for needless hand-out jobs from the local government. More than half of young working age people can find nothing to do.
Inflation in Italy is -1.6 percent. Negative. Who will buy a new washing machine or car if they think it is going to cost less next year? And the deflation makes it harder to reduce debt: in real terms the debtor country – and Italy owes €2 trillion – has to pay back more. Real interest rates are high. With the debt increasing in real terms Renzi must make more cuts to keep within his eurozone imposed 3 percent ceiling.
More cuts mean more deflation and there is therefore no room to reduce taxes to make the economy more competitive. It is a vicious circle
And now from Draghi we get some talk of buying asset backed securities. Southern Europe needed quantitative easing in huge amounts and it gets crumbs from the north’s table.
Much of this trouble is inherent to the euro: it was always going to happen, as many of us said. But they seem blind in the north, particularly in Germany, to the effects of this. There will be middle aged people who have never worked, who have children with no prospect of a job. Graduates, some of them, will find work abroad; a brain drain which will be felt for generations.
Public sector unions have been told wages will be frozen again next year. They will strike, there will be unrest. Mass civil unrest has, largely, held off so far. How long will that continue, when the people realise the hopelessness of their plight?
Some say Draghi is sitting out his time in Frankfurt until he smoothes into the Presidential Palace in Rome. If he gets the job, will he be the President who finally takes Italy out of the nightmare the euro has become?
Or will he be another who receives instructions from Brussels and Frankfurt as if they were from the Almighty, who puts Europe above his own people?
Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelance writer, novelist, and farmer. You can read more of his articles about Italy here
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