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Maybe Europe has done far better than we previously thought
"In 2008, the euro was worth almost one and a half dollars. By 2022, it had fallen back to close to parity." - source
As much as we commonly think that the Euro will always remain more valuable than the US Dollar, from a long term perspective, both currencies have neared to parity. This affects a lot when we discuss the European economy since most economic discussions are centered around metrics measured in dollars.
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This Fortune article, which discusses the contrarian perspective of the European economy, has a couple points that convey why Europe can be seen as an economic miracle, or to some, "a Cinderella story." Here are the points I've gathered:
- “When you weigh other indicators, such as economic output adjusted for purchasing power parity (PPP), per capita GDP, or productivity per hour worked, it’s almost as if a miracle has occurred—or at least, the European economy looks far better.”
- “Even Germany doesn’t look so bad when you examine the right metrics: In GDP per hours worked, at purchasing power standards, Germany surpassed the U.S. in 2022, completing a decade-long comeback story.”
- "Adjust purchasing power and output for the EU fell only 4% behind the US over the last 20 years. Look at GDP per capita, the EU 27 grew faster than the US thanks to Eastern Europe catching up and Western Europe holding steady."
These quotes certainly present an interesting perspective on the European economy, suggesting a more positive outlook than initially perceived. By shifting the focus to metrics like PPP-adjusted GDP and productivity, the narrative changes from one of lagging behind the US to one of remarkable resilience and even surpassing its rival in some key areas. The mention of "miracle" might be hyperbolic, but it highlights the surprising strength shown by Europe when considering factors beyond just headline economic figures.
Even if Europe has shown remarkable resilience, the continent:
- lacks big tech companies
- relies immensely on foreign nations and low energy return on investment (EROI) green energy sources
- has limited access to venture capital funding
- has an aging population issue
At the same time, the continent's labor markets remain strong, it has been able to adapt to the sudden decoupling of Russian energy, and the ECB has paused rate hikes. I'm hopeful that as the continent embarks on more austerity measures, it will be on the road to reducing the size of its bureaucracy, reducing taxes and regulations, and creating an environment that's ripe for prosperity.
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www.ft.com
‘Cinderella story’? Economists respond to eurozone growth data
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