Europe is under greater pressure than at any time since World War II. An energy crisis precipitated by Russia’s war on Ukraine has morphed into a broader economic calamity with implications for decades to come. The grand experiment of European solidarity is being tested.
To tame inflation, the European Central Bank, like the Federal Reserve, is trying to slow growth through successive interest rate hikes, at the risk of provoking a recession. However, as is the case in the U.S. and the rest of the world, higher interest rates are proving to be an unhelpfully blunt tool. The cause of inflation is external to national economies and caused by the supply squeeze on Russian energy and food price increases.
Economic crises and growing inequality undermine social cohesion, with lasting political consequences. In Italy, voters are likely on Sept. 25 to reject the competent technocratic government of Mario Draghi, the former head of the European Central Bank, with a coalition of right-wing parties united in their opposition to the European Union. This despite the fact that the EU has given Italy huge transfers, and in effect is underwriting Italian debt.
Many of the forces besetting Europe are compounding one another: an energy crisis, inflation, economic inequality, a slow-moving demographic imbalance, fractious politics.
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