Bad News for European Economy
European economies continue to suffer due to high oil prices and rising unemployment.
For months, even years, oil prices have been rising. The price of oil has broken records on several occasions, and the price continues to grow. At this moment, many experts believe that the price of this valuable product may continue to rise until one barrel costs more than $200; an amount one considered impossible.
As a result, European economies are suffering. European countries, especially members of the European Union, are dependent on each other. When one economy is in trouble, the others are as well.
Rising oil prices makes life difficult for all economies, but especially for those dependent on exports; after all, expensive oil makes prices of other products go up. When prices go up, one sells less. The less one sells, the worse the economy is doing.
One of the European countries most suffering right now, and which will suffer even more in the near future, is Germany. Germany’s economy is in serious trouble. Oil prices are going up, the same goes for unemployment. At the same time, exports go down; this while Germany’s economy depends on exports for its wellbeing.
When Germany’s economy is in trouble, the rest of Europe is in trouble as well. Germany is often referred to as the ‘engine’ of the European economy; it is gigantic (for European standards). When this economy suffers, all economies suffer. Take, for instance, the Netherlands. The Netherlands does a lot of trade with Germany. This country, like Germany, is a trading nation. The most important trading partner is the Eastern neighbor.
As a result, the very moment Germany’s economy suffers takes a serious blow. Less economic growth in Germany means less economic growth in the Netherlands. The same goes for quite some other European countries. The less well these countries are doing, the less their own governments and the EU can spend. Less government spending will cause even more economic trouble.
The question is whether the government should take an active role, or whether it should let nature run its course. Both approaches have up- and downsides. Letting a recession come will obviously result in a lot of problems in the short run. People will lose their jobs. They will have less income. Less will be spent. Less spending means less production and, therefore, even more unemployment.
On the other hand, artificially keeping the economy alive and well, by spending bigtime, results in expensive programs which may hurt the growth potential in other years. Additionally, weak industries have to be destroyed, so people can focus their efforts on more successful areas, which results in more money, and more spending… and a stronger economy. Of course there is also the lesson history has taught us; when a government starts spending money on a particular issue it is difficult if not impossible to abolish the program in better times. As if that is not enough, an increase in government spending will also result in higher debts. Debts have to be paid off. With interest.
This is the debate going on in Europe right now. It is fairly likely that European politicians will find a middle way; spending more in some areas, and less in others. Overall, though, Europeans tend to favor an active government. Especially in difficult times.
Don’t forget that Europe trades extensively with the US. One of the reasons Germany may be having trouble with exports is that the US economy is in recession and the dollar is much weaker than the euro.
Though I suspect that this bad economy won’t be bad enough to convince Michael to get a degree in something more marketable than American Studies.