Why 2014 Went Wrong for the Eurozone

Currency Bloc Was Supposed to Exit Debt Crisis, but Three Factors Held It Back

By Simon Nixon of the WSJ. Excerpts:

"But the third factor in the eurozone’s weak performance in 2014 was homegrown. Structural obstacles continued to impede the rebalancing of many economies, particularly in Southern Europe, preventing capital and labor from being reallocated to where they could be more productively employed. Rigid labor and product markets have made it hard for firms to adapt to the new economic environment and have deterred new investment.

Crucially, weak insolvency regimes and inefficient judicial systems have prevented the restructuring of private-sector debts, essential to enable banks to work through their vast portfolios of nonperforming loans. Meanwhile, high levels of taxes, corruption, bureaucracy and protection for vested interests continue to discourage the supply of the new equity capital that the eurozone urgently needs to fund a new cycle of growth.

Removing these structural obstacles is crucial not only for the eurozone’s growth but also for its long-term viability—a point made by ECB President Mario Draghi in a recent speech."

"Of course, much of the problem lies with weak political structures: Even determined governments have struggled to contend with well-organized and well-funded interest groups embedded in bureaucracies, trade unions, judicial systems and the corporate sector."