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Europe's Continued Stagnation Is Not Surprising, Given Lack of Reform

The Guardian reports that Italy’s record-long economic slump has continued for another quarter. This isn’t much of a surprise given Prime Minister Enrico Letta’s continued refusal to countenance necessary structural reform, especially as it pertains to changing the country’s wildly outdated labor laws that have proven politically impossible to change.

On a broader scale, today’s news is a microcosm for the rest of Europe. As long as countries push off necessary reform to the fundamental structure of their economies—meaning the creation of business-friendly regulatory environments, structural budget cuts, and improved enforcement of property rights—they will continue to stagnate and face financing constraints from international markets. In my new report, The True Story of European Austerity, I point out the surprising lack of budgetary change in most of Europe and explore the differing economic results between countries that have not pursued fiscal responsibility and the handful of those that have.

At the end of the day, entrepreneurs and investors must ask themselves: Do I feel confident taking risks in this environment? Given the increasing regulatory burden from Brussels—exemplified most recently by implementation of the Financial Transactions Tax to discourage high-frequency trading—and little hope for the aforementioned fundamental change, the answer seems to increasingly be a resounding “No.”

European officials ought to change their tune. In an earlier post summarizing first-hand data analysis, I found lower borrowing costs associated with higher levels of economic freedom among European countries. Investment chases freer economies.

How many more quarters of stagnant growth will it take for European leaders to realize this? Well…who is John Galt?