July 30, 2014
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Columns

Bad finances indicate EU ruin

The United States is pushing for the European Union to impose economic sanctions on Russia for its incursions on Ukraine. But the real question here is not whether the EU should impose sanctions, but whether the EU can afford to go without Russia’s exports, like energy. The EU is entrenched in economic turmoil because of debt and slow expansion. These problems affect living conditions for most Europeans.

These problems begin with the government and private debt in the EU. As of 2012, the average debt, as a percentage of the GDP, of the entire European Union was 84.9 percent. Taxation of each country’s people will be necessary to eventually pay the debt back. But instead of ending debt by cutting programs and increasing taxes, countries can fund their programs with more debt or deficit spending. The future day of reckoning, when the debt must be paid back, has come for the EU.

As of 2012, most EU nations, like France and the United Kingdom, relied on debt to finance their budgets. But as the spending by these nations increases, their economic growth is slowing down. Spain, for example, experienced 110 percent annual GDP growth in the 1960s. Currently, its annual growth is only 24.1 percent. European banks currently hold more than $1.7 trillion worth of bad loans. These banks, if they fail, may need a bailout, which would also be financed with more taxes.

These problems wreak havoc on the EU nations. Across the EU, 26 million people are unemployed. Twenty-five percent of the populations in both Greece and Spain are out of work. These nations have had to cut the budgets of their welfare state social programs, like education and health care, to help pay off the loads of debt and deficits with which they have burdened themselves.

Program cuts have created more poverty across Europe. In Spain, one out of four children lives in poverty. Sixteen point four percent of people in the entire EU live in poverty. If these nations continue to cut back on their safety nets, these numbers will become much worse.

The European nations have brought about their economic destruction by financing social programs with debt, coupled with a poor taxation system and tight labor laws. The tragic part is that these countries choose to repeat these mistakes. The EU cannot afford to boycott Russia. Removing the country’s energy resources from the market will make energy unaffordable to most Europeans and drive the continent closer to total economic ruin.