Running.....

‘’ Could it be that high taxes at the top and explicit plus implicit welfare at the bottom have flattened the European people's effort-reward curves ? And this flattened their motivation to compete against a seven billion rising humanity which has more motivation to work, and is thus well under way to outclassing the old continent? Maybe, just maybe, that is the fundamental reason why the European continent is on a secular 1% growth trend line, and now been fast approached by a world growing at 4% as a whole? Maybe, just maybe, more coercive collectivism is not the answer?

No, that can't be. More central planning and more redistribution are always a safer bet. Aren't they dear voters? European decline is much more deeply rooted. Not in central banks or governments, but in voters. It cannot be stopped. Voters themselves will choose more and more totalitarianism. Left or right matters little. Their self made decline is baked into the cake’’.Zahir Serrai 

Policy choices of next government in Lisbon, whatever its political stripe, will be constrained by the bloc’s tight rules

As alleged coups go, this one failed quickly. Portugal’s minority conservative government fell this week within days of its formation.

When the country’s president appointed the center-right politician Pedro Passos Coelhoas prime minister after October’s elections, a combination of left-wing and euroskeptic observers condemned the move as an affront to democracy. The hashtag #PortugalCoup was popular on Twitter.

In light of the Greek referendum in July, when Greeks rejected the terms of a bailout and then were forced to swallow them later, these critics depicted the events in Portugal as further evidence that the will of the people no longer counts for much in the eurozone.

In fact, Portugal’s President Aníbal Cavaco Silva was just following precedent by calling on the leader of the largest party to try to form a government. Now that Mr. Passos Coelho’s program has been voted down in parliament, the parties of the left may get a chance to govern.

Not all these parties want to stay in the euro, though the Socialist Party, the largest of them, does. But Mr. Cavaco Silva insists that any future government must pledge to keep the country in the single currency.

‘Draghi has done wonders. But the ECB is too much like the Bundesbank and not enough like the U.S. Fed.’

—Simon Tilford, economist with the Centre for European Reform

That means the policy choices of the next government, whatever its political stripe, will be constrained. It is a fact of life in any currency union: When you sign up, you give away some of your economic sovereignty. National politicians are less able to shape policy as monetary policy gets shifted away from national capitals.

Yet, the eurozone’s architects have gone further in making life hard for national politicians. They have put in place a set of rules that provide a single path to growth, one that is difficult and likely to yield fruit only in the long term: overhauls to labor and product markets to improve economic efficiency.

Most economists think such supply-side changes are necessary for Europe, but many don’t believe they are enough on their own to shift economic prospects for the eurozone quickly.

At a weekend conference organized by the London-based Centre for European Reform, a think tank that supports the European Union, most participants argued that the European Central Bank’s policies are too restrictive and the bloc’s rules don’t leave enough scope for governments to stimulate demand through budget policies.

Some in attendance praised ECB President Mario Draghi for saving the euro by his actions. “Draghi has done wonders,” said Simon Tilford, a CER economist. “But the ECB is too much like the Bundesbank and not enough like the U.S. Fed.”

The Fed’s objectives oblige it to consider the state of demand in the economy, because it must try to maximize employment as well as curb inflation. But the ECB, like the German Bundesbank it is modeled on, focuses solely on inflation. Indeed, some economists argue that under German influence it has cared too little about inflation falling way under its “below, but close to 2%” target.

This has all translated into anemic demand. Mr. Tilford says structural reforms work best and quickest when there is investment to take advantage of them. But investment and consumption demand is being held back, not least because credit remains hard to come by in many economies that, like Portugal’s, are heavily loaded with debt.

Both private and public debt remain stubbornly high, because there is little growth and no inflation to help lighten the burden.

Recovery, therefore, will be slow for many eurozone economies—and not only those, like Portugal, that have been on the receiving end of bailouts. Even “core” northern economies like Finland and the Netherlands are performing poorly with no strong expansion in sight.

That raises the specter that when the next global downturn comes, the eurozone won’t really have emerged from the financial crisis that began in 2008. Debt may well still be high and interest rates close to zero. The scope for policy action will be limited.

There is little chance, however, that such criticism will change fundamental policy approaches in the eurozone. The orthodoxy inside the bloc, among most policy makers who count, is that this is the right road, if a hard one, that must be navigated. The policies, they insist, are bearing fruit.

Wolfgang Sch?uble, Germany’s finance minister, said on Monday that “Portugal has followed such a successful path in recent years that I am optimistic that it will also continue like this.”

Yet many economies have only a slow recovery in prospect and face the possibility of another downturn before they fully recover, and their electorates are likely to yearn for policies that are barred to them in the eurozone. Politics will keep coming back to bite.