The editors of the Wall Street Journal point out Europe’s problems:
The eurozone economy expanded 0.3% last quarter, according to data released Tuesday. Um, hurray?
We don’t begrudge Europe news that, by recent growth standards, qualifies as good. France notched quarterly growth of 0.2% while Italy clocked in at 0.3%, which is better than the zero and negative numbers from earlier this year. The growth in Europe’s third- and fourth-largest economies helped offset Germany’s worse-than-expected 0.2%.
Still, it’s worth noting that these figures are the best that Europe’s major economies seem capable of achieving even as European Central Bank chief Mario Draghi has provided the sort of stimulus that our Keynesian friends have long demanded: Negative interest rates, a devalued euro (down by around 24% from a 2014 high of $1.40), and purchases of corporate and government bonds to the tune of €80 billion per month.
Nor is that all. The eurozone has enjoyed dramatic energy-price declines, mercifully not entirely muted by that euro devaluation. This helps explain how German consumers have been able to keep their economy chugging, as lower global prices offset the ruinous expenses of Berlin’s green-energy boondoggles.
and go on to ask where’s the growth? I’ll provide two answers. First, part of “Europe’s” growth was an illusion. It was German growth propelled by the Chinese purchasing Germany’s “factories in a box” to build factories to satisfy Western consumption and by borrowing-driven consumption in the eurozone periphery, e.g. Greece. There isn’t enough Chinese consumption to fuel European economic growth and there won’t be unless the Chinese authorities have a dramatic change of heart. Think that’s going to happen? Me, neither.
Second, deadweight loss. The inefficiencies of their system are growing faster than the underlying economies. It’s fun while it lasts but the party’s over now.
