THE EURO HAS SLOWED EUROPE’S ECONOMIC GROWTH

June 30, 2008

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 percent, and then began a steady decline to 4.3 in the 1960s, 3.4 percent in the 1970s, 2.3 percent in the 1980s and 2 percent in the 1990s.
  • In the first five-year period of the 21st century, the eurozone's growth rate dropped even further, to 1.7 percent.

Far from benefiting the economic development of its members, the euro is doing it harm, says Louzek.  The eurozone 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 eurozone 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 eurozone.

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

 

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