Quantitative easing won’t cure Europe’s economic woes

The European Central Bank’s (ECB) quantitative easing (QE) programme seems to have created a state of euphoria among global investors, but it will do very little to ameliorate Europe’s economic problems.

A close look into the state of Europe’s economies reveals a much ignored fact by most professional economists and the media alike: Europe is the sick man of the global economy once again.

It has been several years since the eruption of the global financial crisis, yet Europe’s economy has yet to return to pre-crisis levels.

The euro area, in particular, is mired in a severe economic crisis from which it is simply unable to recover.

All across the eurozone, socially intolerable levels of unemployment, stagnating and/or declining wages and lack of growth prospects are producing a European public sentiment that is increasingly Euroskeptic and in fact outright hostile to further integration.

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The euro crisis has had a devastating impact especially on the peripheral eurozone countries (Greece, Portugal, Ireland, Spain, Italy and Cyprus), producing massive unemployment and increasing substantially the debt-to-GDP ratio, mainly thanks to the austerity policies that were implemented in the midst of an economic recession as part of the bailout plans (Italy excluded). 

GDP in Spain, Portugal, Ireland, and Italy is on the average 7 percent below the pre-crisis levels; Greece’s GDP is nearly 25 percent below its pre-crisis peak. The official unemployment rates in the peripheral countries are stratospherically high, indicating that there is no recovery. In Greece the official unemployment rate is 26 percent while in Spain it is close to 24 percent. In Portugal it is 13.3 percent, in Italy 12.6 percent, and in Ireland (the country with the highest net migration level in Europe) at over 10 percent.

The public debt ratio has also exploded for all of these countries, leaving them in a state of debt bondage and permanent austerity from which they are unlikely to escape any time in the foreseeable future. In Greece, government gross debt exploded from 126.8 percent at the end of 2009 to over 175 percent at the end of 2014; Spain’s public debt ratio grew from 52.7 percent in 2009 to nearly 100 percent at the end of 2014; Ireland’s grew from 62.2 percent in 2009 to 110 percent at the end of 2014; and Portugal’s, from 83.6 percent in 2009 to over 130 percent at the end of 2014.

Moreover, all across the eurozone, socially intolerable levels of unemployment, stagnating and/or declining wages and lack of growth prospects are producing a European public sentiment that is increasingly Euroskeptic and in fact outright hostile to further integration.

In this context, QE is hardly the way out for Europe’s economic woes. The ECB’s plan to purchase public-sector bonds in an attempt to bring inflation up to a target and boost Europe’s economy is misguided. All that it may accomplish is create asset bubbles and new distortions in the real economy.

What Europe’s economies need are fiscal policies that can stimulate real growth and generate jobs. Large-scale direct stimulus spending by governments will boost the real economy by increasing aggregate demand and will help to cause wages to rise. 

C J Polychroniou is a research associate and policy fellow at the Levy Economics Institute of Bard College and a contributor to Truthout.org.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.