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Europe is (again) in economic trouble
Europe is (again) in economic trouble
Oct 29, 2026 9:42 AM

With some Americans wondering whether the United States is headed for a recession, it’s worth looking across the Atlantic to see what is happening to the economies of Western Europe. Alas, there are many indicators that much of the old continent is headed, yet again, for a significant economic slide.

The economy to watch is Europe’s largest. Germany’s unemployment rate ticked up in July, and industrial production and factory orders declined in June. That is bad news for an export-orientated economy. Growth has also slowed from what was already a snail’s pace. Germany’s predicted growth for 2019 is now being estimated at a mere 0.5 percent. Yes, that’s right – just half a percent.

On the other side of the Rhine, the picture is more mixed. Unemployment in France fell from 8.7 percent in the first quarter of 2019 to 8.5 percent in the second quarter. That suggests that some of President Emmanuel Macron’s efforts to engage in a fairly limited liberalization of parts of France’s economy have had some impact. Unfortunately, economic growth also fell from a measly 0.3 percent in the first quarter to an anemic 0.2 percent in the second quarter. This is very bad news for France.

Further south, the basket-case which is Italy’s economy increasingly resembles the circus which is its politics. Remember, Italy actually fell into recession at the end of 2018 and there are plenty of indications that it is headed back down that path. Indeed, Italy’s growth in per capita e over the past twenty years has been close to zero.

plication is that Italy’s debt to GDP ratio is now a historic high of 130 percent. That is certainly going to be a drag on growth in the long-term, especially as Italy’s political class shows no willingness to deal with the problem. More than mentator is suggesting that Italy could end up defaulting—something that we expect of truly dysfunctional and corrupt economies like Argentina’s but not a major European Union economy.

Overshadowing all these problems is that there’s no reason to expect monetary policy to have any significant ability to stimulate Western Europe’s economies. Leaving aside the fact that the European Central Bank long ago abandoned its legally-mandated focus on monetary stability and instead lurched into using monetary policy to stimulate economic growth, the ECB only stopped quantitative easing in December 2018. The official interest rate is already -0.4 percent and there’s no evidence that going further into negative interest rate territory will help very much.

Of course, none of this should be of fort to Americans. A further slowdown or outright recession in Western Europe will certainly affect parts of the U.S. economy. The bigger concern is the apparent inability of Europe’s political class to deal with some of the deeper underlying causes that drive the ongoing economic malaise which affects so many Western European economies: excessive welfare spending, rigid labor markets, the below-replacement level birthrates, to name just a few. Whatever the global economy’s mid-to-long-term future, Western Europe increasingly looks like playing a bit-part on that stage.

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