Why the European Recovery Plan Will Likely Fail

by Daniel Lacalle
Mises.org

The €750 billion stimulus plan announced by the European Commission has been greeted by many macroeconomic analysts and investment banks with euphoria. However, we must be cautious. Why? Many would argue that a swift and decisive response to the crisis with an injection of liquidity that avoids a financial collapse and a strong fiscal impulse that cements the recovery are overwhelmingly positive measures. But history and experience tell us that the risk of disappointment regarding the positive impact on the real economy is not small.

The history of stimulus plans in the eurozone should alert us against excessive optimism.

As you may remember, the European Union launched in July 2009 an ambitious project for growth and employment called the “European Economic Recovery Plan.” A stimulus of 1.5 percent of GDP to create “millions of jobs in infrastructure, civil works, interconnections, and strategic sectors.”

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