WHY THE EUROZONE ECONOMIC MODEL IS SELF-DESTRUCTING

The European Central Bank on Thursday doubled down on its negative interest rate strategy. Desperate for European banks to increase lending, the ECB now charges European banks to store money. The intent behind these charges is to encourage banks to find greater value in lending rather than saving. The Wall Street Journal explained the situation on Monday. Still, the underlying reason that Eurozone economies are continuing to struggle takes root in the Eurozone economic system itself. Restricted bank lending is simply a reflection of a much deeper economic failure.

Consider Eurozone economic growth statistics since 2013. The data shows that the Eurozone has grown at a trickling rate of about 0.3 percent. In contrast, over the same period, the United Kingdom experienced roughly 0.7 percent growth and the United States experienced about 2 percent growth. Digging deeper, we see further evidence for the Eurozone’s economic decay. Look at the Eurozone’s youth unemployment rate. Between October 2013 and October 2015, youth unemployment declined only by 2 percent, down to a not-so-small level of 22 percent. The U.S. rate, by comparison, dropped from about 15 percent to 11 percent during the same period. The U.S. youth unemployment rate is now half that of the social EUtopia!

The clear incongruity between the economic data and Eurozone claims of social-welfare success must not be ignored. After all, economic growth is the engine of opportunity. When an economy grows, the value of human capital also grows. As an extension, we’re able to earn more and use our increased prosperity to pursue our individual interests. And our societies develop as we spend more and encourage innovative entrepreneurial activity. Humans have a dual nature of finding a stable foothold to secure his life and also to innovate and experiment even if it means risk. A good example of an area where humans satisfy this zeal for experimentation is the trading market. And when vehicles like Qprofit System impart security to it, the conditions are simply met. Yet in the Eurozone, human opportunity is losing out.

euro-area-gdp-growth

Source: Trading Economics

Regardless, there are specific ways in which the Eurozone state model fuels this failure. First, Eurozone labor markets are exceptionally rigid. Often defined by immense barriers to entry and extreme limits on employer incentives to hire quality staff, young Europeans find it extremely difficult to enter the workforce and learn the skills necessary for their social mobility. This is especially true for second-generation European immigrants, who often face sustained prejudice when applying for jobs. Yet the Eurozone’s empowerment of closed-industries and powerful unions is another major problem. These special interests use political-patronage relationships to prevent competition. As a side note, Greece provides a good example of what happens when this socio-economic failure reaches breaking point.

At a more basic level, the Eurozone state model of expansive government and high public spending also crowds out private capital. In recent years, this crowding-out concern has been worsened by regulatory fetishism. Reacting to populist concerns over the banking crisis, the Eurozone restricted and misdirected capital flows. And while some financial reforms in areas like “stress testing” and strengthened capital reserves have been positive, many have been damaging. The simple point is that when deciding whether or not to lend capital to individuals and businesses, financial institutions must make careful cost-benefit assessments. Where loan risks increase due to regulatory pressure, lending decreases and capital flows experience stenosis. And unfortunately, those who suffer most are not the rich, but rather those who need capital to help them ascend the opportunity ladder. More often than not, these are small businesses and lower-middle income families. But don’t take my word for it, as the ECB noted in a recent survey report, “tightening in credit standards on loans for house purchase was driven by “other factors” reported by banks, in particular relating to national regulation.”

Ultimately, what we’re seeing in Europe is the raw consequence of socialist governance. Failing to recognize that private finance is the engine of dynamic economic growth, investment, innovation and productivity, the Eurozone has embraced an opportunity-limited future. On economic social justice, Pope Francis is wrong. Hiding behind the mythology of moral beneficence, socialism is an enemy, not a liberator, of the people.

Don’t believe me? Just ask a young person in… Vietnam.