Europe Groping For a Solution

For John, BLUF:  Economists?  They are floundering.  Nothing to see here; just move along.

We are not the only place where the economy is in question.  Here is a review of the situation within the European Union by The Financial Times.

The debate gripping financial markets and European capitals since the Italian elections over whether the eurozone crisis is back contains a troubling supposition: that it ever went away.

The existential threat of euro implosion may be gone. But the self-congratulatory mood that has coursed through European officialdom over the past six months coincided with deepening contractions in many economies, unemployment rising to double digits across the region, and sovereign debt levels setting new records.

We avoided the end of the world, EU leaders seem to be saying, rejoice that we only have the worst recession since the second world war.

Then the longish article goes off to talk about Greece.  And then Italy.  Then this item:

After Olli Rehn, the EU’s economic chief, argued last month that countries should not falter over fiscal reform, Nobel prize-winning economist Paul Krugman declared a “Rehn of Terror”, prompting an online war of words between Princeton and Brussels.

I think this is the interesting part.  Nobel Prize winner and New York Times Columnist, Professor (Princeton) Paul Krugman and the European Unions Economic Chief, Finn Ollie Rehn, have squared off on the question of if Keynesian Economics works.  This is not just an academic debate.  Millions of people are counting on their nations to pick the correct answers.  It is worth reading the whole Financial Times item on the "online war of words".

But, it isn't all that straight forward.  Someone out there on the Internet suggested that it isn't just about government spending to stimulate the economy.  It is also about the structure of the economy itself:

In many economies the burden imposed by high degrees of state participation in the economy dulls incentives and diminishes resources for more dynamic private sector activity.

In France, government spending is 52.8 percent of the economy.  In Italy, 48.8 percent.  In Greece, 46.8 percent. In Spain, 41.1 percent.  Lest we become smug, in the US it is 38.9 percent.  Data are from a 2011 index compiled by The Heritage Foundation and WSJ.

When Greece and France and Italy begin privatizing more economic assets and reducing excessive regulations, then we'll know they're serious about improving their conditions.  Unfortunately, these countries toyed with socialist and communist economic ideas far too long in their postwar experience, weakening intellectual foundations and popular support for market economics and private ownership of critical economic infrastructure.  This and dismaying levels of corruption stifle prospects for reform.

A friend of ours from our time in Naples, Italy, who now lives in Louisiana, is up visiting us from his Fellowship at a Westchester, NY, hospital.  It is about complicated cases, where different medical problems in a single patient compound the overall problem of diagnosis and treatment.  It isn't just Doctor Greg House finding the hidden answer.  It is Doctor House dealing with a patient with several deadly and interacting hidden problems.

Europe is facing an economic downturn, economies that have lost the entrepreneurial spirit within the legal (White Market) economy, perhaps unsustainable levels of Government spending, an economy working more on the black market, and general corruption.

It is a complicated soup of problems.

Regards  —  Cliff