Friday, October 10, 2014

So How is Draghi Doing So Far?

Mario Draghi, who heads up the European Central Bank(ECB), has been following the Bernanke lead and expanding, dramatically, the role of the ECB.  Over the mild and muted objections of German finance officials, Draghi has gradually but ominously pushed Germany increasingly into the role of backstopping the profligate economies of Greece, Spain, Italy, and, yes, France.

The Ukraine sanctions are probably the trigger that has turned the once-strong German economy in a downward direction.

Europe is an economic basket case because of taxes and regulations. That's not changing.

Today's WSJ article by Giada Zampona and Marcus Walker had this to say about what ails the Eurozone:

"Rigid market regulations, onerous taxes on jobs, and other long-standing labor practices have contributed to a long-term decline in economic dynamism in many parts of Europe, a trend exacerbated by the long financial crisis.

A lack of demand in Europe's economy, which shows up in stubbornly high unemployment and very weak inflation, is compounding the region's supply-side problems.

A feeble economic recovery since 2013 is at risk of petering out, economic data in recent weeks have shown, putting increasing pressure on euro-zone governments to act."

Note that commentators always look to government to lead the way out.  Perhaps a less active government with fewer regulations, lower taxes, and more reliance on free markets might help.  After all, the highest economic growth in the history of Europe and the US occurred when governments were relatively small and unobtrusive.

In the current political environment, governments are involved in every nook and cranny of American and European life.  No wonder there is a declining role for individual initiative and economic dynamism.  Europe and the US continue to move toward the old Soviet model.  That means, increasingly, stagnant economies that pit rich against poor, since the poor have few opportunities in a stagnant economic environment. 

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