Pessimism is building across the euro area about economic performance. Growth has slowed in most euro area economies, even as inflation remains persistently low and unemployment persistently high. The question is whether to blame this poor performance on external factors or on decisions made by European policymakers. If this is just another patch of bad luck, then the only challenge is to batten down the hatches and ride it out. It would be more worrying, however, if Europe’s economic policymakers have set their economy sailing off in the wrong direction.
The easy answer is to blame the outside world. Growth in emerging markets is slowing. This is not only sapping demand for European exports but also pushing down commodity prices and increasing volatility in exchange rates. At the same time, other major economies are underperforming. The recovery in the United States is quicker than in Europe but it is still too uneven for the U.S. economy to help pick up slack elsewhere. Japan is much weaker. Worst of all, Europe is surrounded by tragedy. The human cost of violent conflict and desperate migration is all too apparent; what is less obvious is the toll on European businesses that have lost access to neighbouring resources, relationships and markets.