The Eurozone is getting a new stimulus package of 750 billion. It is causing Euphonia at investment banks, fund managers, and investors. As well is it offers smiles on the faces of bureaucrats. When we look at the history of the stimulus than it is not something to smile. We should fear the optimism.
In 2009 Europe had a 1,5% of GDP stimulus package. It was supposed to get millions of jobs for the European people. This all to swiftly deal with the fall out of the credit crisis. Unfortunately, the outcome was different. No millions of jobs were created. 4.5 million jobs where being terminated. The deficit exploded. Resulting in massive youth unemployment in the south of Europe.
It is not possible to say that back than the ECB didn’t do anything. They cut interest rates from 4.5% to 1%. As well as a stimulus package of 115 billion EUR. Still, the real problems where not being solved.
One of the big risks we are now living with is the ECB. The ECB balance sheet is bigger than the FED. It is actually one of the biggest ones in the world. But compared as a percentage of GDP>
After all the above failures, in 2017, we saw the Brexit referendum. Juncker came with his plan. A big investment plan for Europe. 360 Billion EUR was raised and invested. none of the projects had any real economic outcome and result. So another 360 billion mal investment in the eurozone.
There is a big difference between the stimulus in the USA. The USA has less central planning. Political planning is an essential part of the stimulus. The political interest is a very destructive one. It is one that supports only 1 type of company. At the moment are we seeing how innovative fast-growing companies are going out of business. All due to the new regulation that is introduced. We see that all the stimulus is causing an eruption of zombie companies. These are firms that are unable to pay interest on the existing debt with its revenue. They can only survive when the interest rates are low.
Small and medium-sized businesses, normally the job creator of the economy, is heavily dependent on the banking sector. The banking sector is simply not interested in those loans. But there is no alternative. Can you imagine fast-growing companies to be financed by bank loans? Why not bring this to American levels of 30%. It will have to come down from 80%.
Within the Eurozone, there is a very destructive obsession. This is redistribution. Highly productive sectors of the economy are being taxed and punished with new regulations, in favor of struggling sectors. At the moment it is around the 40$ of the GDP being used for this. Just start with abolishing this. Allow creativity to create prosperity.
The big problem for the Eurozone is not that there is a stimulus. The problem is that there are too many stimuli. The stimulus is just a power grab from the government. A government that has never created prosperity and I doubt it will ever do so.