It's no surprise that Europe is doing badly, but I don't think most people really understand how badly Europe, especially the western and southern portions, are doing. Take the industrial production statistics that came out yesterday which showed that Europe as a whole contracted by 0.4% on a monthly basis and fell 1.9% compared to last year. The numbers are bad, signifying a recession, but aren't necessarily horrible. Two things need to be noted. First, growth in eastern europe is buoying these numbers so that weakness in the larger countries is being masked. Second, it's very important to take note where the absolute industrial production level is compared to years past. Incremental declines of 0.2% or 0.1% really add up. Take a look at this chart that I compiled of industrial production levels of select countries compared to 2005 and also what year those countries first hit this level (to give a sense of how far an economy has regressed). It's really not pretty:
And I just don't see how things are going to get better anytime soon. To cure the debt crisis, the European authorities have been throwing even more debt at is, making the eventual fall even worse. Also, "austerity" has meant heavy tax increases, putting economies deeper into recession (something that could happen in the US as well, thanks to the massive scheduled tax increases that are coming in several months). Take a look at this list of measures approved in Greece last year:
- Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014.
- A solidarity levy of between 1% and 5% of income will be levied on households to raise 1.38bn euros.
- The tax-free threshold for income tax will be lowered from 12,000 to 8,000 euros.
- There will be higher property taxes
- VAT rates are to rise: the 19% rate will increase to 23%, 11% becomes 13%, and 5.5% will increase to 6.5%.
- The VAT rate for restaurants and bars will rise to 23% from 13%.
- Luxury levies will be introduced on yachts, pools and cars.
- Some tax exemptions will be scrapped
- Excise taxes on fuel, cigarettes and alcohol will rise by one third.
- Special levies on profitable firms, high-value properties and people with high incomes will be introduced.
Cross posted from libertarian neocon's blog.