A recent opinion article published on Bloomberg View about the structural fragility of the Eurozone has spurred me to look further into the issues faced by the nations in the region in regards to debt.
In his article, Jean-Michel Paul suggests that Quantitative Easing (QE) is used to invest in European infrastructure, which has suffered from a lack of funding in recent years. For example, infrastructure spending in the Eurozone has dropped to 2.7% on average – lower than Japan and the USA by an entire percentage point in some cases.
Infrastructure investments in some larger Eurozone economies has dropped by 15% to 20% in the last two decades – well before the Great Recession of 2008 which further exacerbated the situation. With this in mind, Mr Paul’s suggestion is understandable.
Instead of this, it seems that some of Europe’s larger economies are spending their available funds on pensions and healthcare – this may be due to Europe’s (particularly Italy’s) ageing population.
Jean-Michel Paul goes on to state that, during the boom period before the Great Recession, European nations failed to save and invest properly and now they face the cost of heavy spending on social programs.
The article briefly mentions that investment doesn’t have to be in roads and rail. Jean-Michel Paul comments:
“Whether spent on roads, high-speed rail or even ensuring that all EU citizens have fast internet access, there are plenty of potential projects to compete for these resources.”
This statement implies that investing in online development may be a good use for QE investment in Europe. The region is lacking in regards to innovation, so investment in connectivity and development may be a welcome change for Europe.
In summary, there may be several uses for QE in Europe – it would be wise for policymakers to pay attention to the thoughts on this.
Avner Motaev is the director of Mobile2Business, a provider of telecommunications solutions to businesses in Austria. Mobile2Business is an official business partner of T-Mobile.