Photo: Stephen West. Source: Wikimedia
In New England we’re about to enjoy mud season, that period in late winter and early spring where the roads can become impossible to manage. During the day, the frozen roads thaw from the surface on down, and all the water from melting snow seeps into the thawed layer. Then the road freezes again overnight. The repeated freezing and thawing allow the saturation to migrate deeper and deeper into the soil. The result is rutted roads, frost heaves, and filthy shoes.
The repeated freezing and thawing of economic and political conditions in Europe seem to have created a mud season over there. Successive over-regulation and liberalization, combined with generous social benefits policies has contributed to “Eurosclerosis,” a state of chronic under-employment and low productivity. Many thought that have Europeans join together in a common currency – the euro – would speed economic integration and unleash Europe’s untapped economic potential. After all, they have a highly educated workforce, sophisticated infrastructure, and strong democratic institutions. Why should their incomes lag so far behind?
US and Eurozone Real GDP. Source: Bloomberg
But monetary unification hasn’t led to economic integration. Instead, the forces of political disintegration are on the rise. The “Yellow Vest” protests in France, the far-right AfD party in Germany, the Lega in Italy, and of course Brexit are all evidence of the European mud season that seems to never end. As conditions thaw and freeze, the forces of nationalistic and left-wing populism just get more deeply entrenched.
“Mud Season” in Eastern Europe. Artist: Alexei Savrasov. Source: Wikipedia
In New England, mud season only comes to an end when the weather softens and the roads dry up. Often, we really need a warm spring rain to clear out the frost in the deeper layers of the ground. Until attitudes soften and political tempers cool, Europe’s political and economic landscape will likely stay stuck in the mud.
Douglas R. Tengdin, CFA
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