Europe Attempts to Strengthen Economy Despite Inflation

In the face of soaring inflation and an energy crisis caused by Russia’s attack on Ukraine, European politicians are increasing public-sector jobs, guaranteeing business loans, subsidising energy bills, and investing in infrastructure, defence, and key industries.

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Spending by eurozone governments is expected to reach 51% of the region’s economic output this year, around four percentage points higher than in 2019, according to the International Monetary Fund. In Germany, France, and Italy, government spending as a share of economic output is now at its highest since the early 2000s.

This shift toward larger government comes as many Europeans lose faith in the ability of market-based solutions to address societal problems. A growing number of people believe that only the government can provide the stability and security they crave.

Europeans are not alone in this thinking; faith in capitalism is declining across the developed world. A 2018 Pew Research Center survey found that only 47% of people in developed countries have a positive view of capitalism, down from 58% in 2016. That figure has fallen from 70% to just 50% in the United States.

The turn toward big government may bring short-term relief to European citizens, but it is unlikely to solve the region’s long-term problems. Indeed, it may make them worse.

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High levels of government spending are unsustainable in the long run and will lead to even higher taxes, further stifling economic growth. Moreover, once people become accustomed to receiving government handouts, it won’t be easy to wean them off them.

It is far better to pursue policies promoting economic growth and opportunity, such as deregulation, tax reform, and free trade. These are the policies that have helped Europe prosper in the past, and they are the ones that will help it thrive in the future.

What do you think of these policies?

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