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Tuesday, July 27, 2021

Big Government Is Turbo-Charging the U.S. Economy. Can It Transform Europe?

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When it comes to “more government,” Americans are supposed to be the skeptical ones. Yet the U.S. is now leaning on the state to transform the economy by giving trillions of dollars to consumers and even taking a more direct hand in industrial planning.

In government-loving Europe, political limitations may prevent a comparable economic boost.

Next week, the European Union will start approving member nations’ spending plans as part of the bloc’s €673 billion pandemic recovery package. Analysts expect Europe to bounce back strongly from Covid-19 but, unlike in the U.S., they forecast permanent economic damage.

More money will go to countries most in need: Spain and Italy will receive grants making up 6% and 4% of their gross domestic products, respectively. Although spread over many years, this isn’t insignificant. Spanish officials believe it could boost economic growth by 2 percentage points a year.

But can it also help fix the deep productive imbalances that have turned European stocks into chronic underperformers? A broad analysis of the Italian and Spanish proposals suggests that only 11% and 22% of the funds, respectively, will be spent nurturing specific industries where underperforming nations might gain an edge.

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