The Euro has slowed Europe’s economic growth

July 16, 2008

Free Market Foundation

The euro is currently approaching its tenth anniversary, yet it remains a contentious issue in the European Union (EU). Marek Louzek, an analyst with the Center for Economics and Politics in Prague and advisor to the President of the Czech Republic, investigates the impact of the euro to see whether it has accelerated or slowed the economic growth of EU member states.

Louzek found economic growth has slowed decade by decade in the continuously integrating European Union:

In the 1950s, the average economic growth of western European economies reached 5.8 per cent, and then began a steady decline to 4.3 in the 1960s, 3.4 per cent in the 1970s, 2.3 per cent in the 1980s and 2 per cent in the 1990s.

In the first five-year period of the 21st century, the euro-zone’s growth rate dropped even further, to 1.7 per cent.

Far from benefiting the economic development of its members, the euro is doing it harm, says Louzek. The euro-zone is growing more slowly than the European Union as a whole. The introduction of the euro was a mistake, says Louzek, which was motivated politically, not economically.

For example:

In countries that are capital exporters, such as France and Germany, the euro is slowing their economies and causing deflation.

In countries at the edge of the euro-zone into which capital is flowing Spain, Portugal, and Greece inflation is, conversely, higher.

The monetary policy of the European Central Bank is too restrictive for Germany and France, and too expansive for Spain, Portugal, Ireland and Greece.

Unemployment remains high in the euro-zone.

Source: Marek Louzek, It’s The Euro That Has Slowed Europe’s Economic Growth, Europe\’s World, Summer 2008.

For text: http://www.europesworld.org/EWSettings/Article/tabid/78/Id/d3d75831-253f-4c13-b85d-169c2a8fdae9/Default.aspx

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 8 July 2008