Europe’s future?

Posted on November 20, 2012 by Madsen Pirie

I was asked by a Russian journalist if I thought the EU austerity programmes would run up against popular resentment, and what was my forecast for the EU. My answer was that austerity has already provoked strikes and demonstrations, and is stoking up social unrest. It has probably reached its limit.

Unemployment is very high in Greece, Spain, Portugal and Italy, especially youth unemployment which tops 50 percent in two of them. The need is for economic growth to generate new jobs and new income streams. That means lowering taxes and regulations, especially on small and new businesses, easing labour markets by removing fixed working hours, employment protection and entitlements. It means giving enterprise the space to see what it can do.

Will it happen? Probably not. The EU is too set on the political goal of union and uniformity to allow the flexibility that individual countries need. And within those countries commitment to the ‘social model’ is too strong to give free enterprise its head. What could easily happen instead is 10 years of Japanese-style stagnation, with the Eurozone lurching from crisis to bailout and back again. It need not happen, but it might well, owing to a failure of politics, not of economics.