September 23, 2024 - 1:00pm
It says something when two European Central Bank presidents responsible for directing Eurozone monetary policy for 14 years — Christine Lagarde and Mario Draghi — sound the alarm almost simultaneously over the trajectory of the EU economy. Speaking at a lecture organised by the International Monetary Fund on Friday, current ECB President Lagarde drew parallels between today’s economic environment and factors 100 years ago which resulted in the Great Depression.
“Today, like back then, we are seeing setbacks in global trade integration, at the same time as strides forward in technological progress,” Lagarde said. In the Twenties, the world economy was going through a period of “global fragmentation” following the collapse of Pax Britannica — developments which could be compared to today’s shift from American hegemony to a “multipolar” world order. New “economic nationalism” led to a “rapid unravelling of globalisation” and a steep decline in international trade.
At the same time, wartime innovations spilled over into the production of machinery, such as the internal combustion engine, on a new scale. Today’s leaps forward in digital technology — especially the excitement over the potential for artificial intelligence to boost productivity — echo the great technological advances and uncertainties of a century ago.
In linking these historical events to present-day developments, Lagarde aimed to favourably compare the actions of central banks today with those of their predecessors. “Over time central banks have recognised that stability should not mean rigidity,” she remarked, claiming “flexible policy toolkits” make banks “better placed to confront structural challenges”.
Such optimism, however, fails to take account of the role that policymakers have played in bringing about these unsettling historical resemblances. Throughout her speech, Lagarde chose to characterise the major events leading to today’s economic fragmentation — the Covid-19 pandemic, the war in Ukraine and the resultant energy crisis — almost as natural disasters, the effects of which policymakers have merely contained. She did not acknowledge the fact that much of the economic impact of these major events stemmed directly from voluntary responses by policymakers: Covid-era lockdowns and associated borrowing, sanctions on Russian energy, and the rush to Net Zero necessitating a wholesale energy transformation.
Other factors which have contributed to the rise of a new “economic nationalism” were also glossed over. Mass migration, which directly fuels the rise of nationalist political movements with protectionist economic agendas, received no mention at all. The protectionist impulse of the green energy transformation, with global powers vying for dominance in the production of key technologies, was not examined, and little was made of spiralling government debt throughout the Western world, most concerningly, in the USA.
Despite her headline-grabbing rhetoric around the parallels between the “two twenties”, Lagarde’s speech was, if anything, more revealing for what was left out. A fuller examination of the EU’s economic woes was provided in a competitiveness report made public this month by Draghi, Lagarde’s predecessor as ECB president. He described the “existential challenge” facing the EU economy, calling for more investment and less red tape, even advocating the creation of a “Commission Vice President for Simplification” to ease regulatory pressures.
Yet while Draghi’s call for a reduced regulatory burden drew praise from the likes of Elon Musk, it highlighted the EU’s in-built limitations on growth. The bloc’s inherent belief in regulation and centralised decision-making — the cornerstones of Lagarde’s confidence in central banks — is the very trait which makes the EU most likely to suffer amid deglobalisation and a new technology arms race.
That staunchly establishment economic policymakers such as Lagarde and Draghi are now sounding the alarm over Europe’s current economic trajectory is telling. Whether they have the wherewithal to ward off the ghosts of a century ago remains to be seen.
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SubscribeTo reduce red tape the EU’s bold, radical idea is to increase the complexity of the Commission with a new Vice President for Simplification. After selection of the new VP from a shortlist of failed European ex-politicians, bureaucrats and bankers, the new VP will promptly set up new committees to deliberate on how to regulate the creation of regulations. The new committee will naturally adopt the Commission’s existing principles on net zero, the Euro, tax, and regulations concerning the existing competencies reserved by the EU, and must instead seek to centralise even more power away from member states, for the sake of efficiency you understand. Any member states that protest are surely anti-growth and both the ECB and ECJ will help “realign” disagreeable national governments. Naturally, this is a challenge that will take a decade or more to bear fruit. It would be churlish to demand tangible results for such a complex and subtle political process across so many stakeholders.
It’s not the ghosts of 100 years ago we need to worry about. It is the ghosts of Soviet state corporatism and an ideological, economically illiterate, privileged technocratic elite that concern me more.
Well done. Jonathan Swift would be proud.
Yes as well as a hilarously titled new conmision for simplification the other thing they want to do is “print” money and waste it on subdidies for more “green” energy and im sure they will find other ways to waste the time of the working people also in useless givernment funded projects also
The eu should hire Trudeau. What could possibly go wrong.
Europe and Britain are over-regulated nanny states that seek to impose govt oversight on every facet of life – except for mass immigration apparently. My head exploded when I started reading about the anti-tourist protests taking place across Europe. Instead of dealing with legit issues created by the one industry that seems to be growing, they would rather shut it down.
I stumbled across a comprehensive review of the degree of British economic stagnation and the reasons why this has happened. It’s a very long read, but well worth the effort. Buried deep within the report is a description of the 1947 Town and Country Planning Act, which completely removed most of the incentive for councils to give planning permissions by removing their obligation to compensate those whose development rights they restricted. Other reforms at around the same time also redistributed away much of the upside that councils had received from development through local property taxes.
https://ukfoundations.co
was there immigration influx to blame in 1974? No. The system was designed to abuse poor white people and now rather than figuring out a way out of this mess, we are focused on people who actually came here way after that! Does this logically make sense to you?
Draghi’s report states that the solution is “more EU”. European countries are the new flyover states of the world. Poor energy resources and policies, ageing and sclerotic workforces, under-investment in real stuff with no silicon valley to bail them out, and levels of regulation that could win a swingers bondage competition. We moved to a small tax haven on the edges of the continent to see us out, but if I were 30 or under I’d personally be gone.
The issue of immigration is like wagging the dog’s tail, a distraction for the white population to find a scapegoat. We cannot claim to be the leaders of the world and, in the same breath, say, ‘No, you are not welcome here for jobs and a better life,’ while ironically, our own people are jobless. The problem is not immigration, especially considering we were once in these countries, exploited them, and became super rich. The real issue is why our people are so uneducated and poor, and why we never address that. Instead, we focus on low-wage jobs. No one is taking an $85,000 engineering job—yet we’re obsessed with hourly wage jobs. Don’t you see the role media illiteracy plays here?
If you truly want to understand which countries might disappear in the next few years unless we stop this obsession with blaming poor people, take a look at the list of languages spoken worldwide. Notice how Europe has one of the smallest counts.
Africa: 2,000 languages
– Asia: 2,300 languages
– Europe: 230 languages
– North America: 350 languages
– South America: 430 languages
– Oceania: 1,300 languages
Do you know why? Because we destroyed our own languages and our own people and now we are putting a wool over your own eyes to focus on poor people. We are our own enemies. The people coming here are not the problem. The real issue lies with those in power who constantly start wars or pursue wealth at our own expense while they threw a red meat!
The problem is not immigration; it’s our failure to recognize our true issues.
“We cannot claim to be the leaders of the world and, in the same breath, say, ‘No, you are not welcome here for jobs and a better life,’ while ironically, our own people are jobless.”
That makes no sense. Why can’t we turn migrants away because we claim to be the leaders of the world (if we even claim that these days)? There’s no connection between the two. If our own people are jobless why can’t we get them work rather than use migrants – there’s absolutely no irony involved.
why and how are we rich?
what do you think is the consequences of Structural Adjustment Programs (SAPs) for one group and Marshall Plan for another? and keep it up forever!
In your opinion honestly why are we rich? We are leaders so no we cannot say you stay poor while I stay rich at your expense.
Let us have free trade and then we will see the reality that is not part of our education system.
The irony is on us! that is the sad part!
The UK is not rich. GDP per capita adjusted for purchasing power ranks the UK only 28th richest in the world. 27 other countries constituting nearly three quarters of a billion people are richer. Of these richer nations, 14 are former British imperial colonies or protectorates of all races. British colonisation very obviously isn’t the cause of global poverty when on every continent former British colonies are all wealthier than regional neighbours that weren’t part of the British Empire. Clearly the formula that first made a tiny rainy island at the fringes of Europe savvy enough to compete with larger and wealthier empires was transmitted to many of its colonies who have since capitalised on the inherited formula of property rights, capitalism, and limited government to make themselves rich. An inheritance now seemingly lost on Britain itself.
You fail to highlight that 3 of that small number of European languages are the three most spoken languages globally with one (English) is the most spoken (either as a first or more importantly a second language.)
The comment about the number of languages is bonkers (some of the other points seem quite sensible).
Are there really 350 languages in North America ? Only if you count the languages of relatively small immigrant groups. But so what ? Are all languages equally useful ?
It’s obvious that the relative success of the US is in large part based on having a single language and core culture (though arguably it has two languages these days – English and Spanish).
I think he is saying language numbers indicate small cultures that have survived. I can see the argument, however, for myself I have lived all over the world and I don’t have an “indigenous” culture. My mothers native tongue was french(well western Canadian french) and my fathers was work/bar room. Mine is English and math. Where does that leave me for culture?
So neither Lagarde nor the author of the article see reason to mention loose lending – on the stock market in the 1920s and housing from the 2000s (6x income mortgages mentioned on the BBC today – looks like we’re in for another boom and inevitable bust).
In both circumstances the inability of borrowers to be able to pay their debts is the direct cause of 1929 and 2008. How do people consistently overlook this?
He described the “existential challenge” facing the EU economy, calling for more investment and less red tape, even advocating the creation of a “Commission Vice President for Simplification” to ease regulatory pressures.
Why would things not be working out as they should?