Europe's Risk Aversion Has Its Consequences

As I watch Europe's deepening existential crisis over its grim growth prospects, I often think back to a speech I heard 16 years ago in Paris.

- Bloomberg

I was a lowly consultant for the Organization of Economic Cooperation and Development, but for some reason they had let me into a fancy lunchtime reception, where I listened to a senior staff member describe how the financial crisis proved the validity of the European economic model. Slow, steady, and highly regulated growth, she explained, was superior to the American boom-and-bust version of capitalism.

What a difference a decade and a half makes.

Last year Mario Draghi, the former president of the European Central Bank, released his now infamous "Draghi report", which blames excessive and fragmented European regulations for strangling growth. Business owners in countries such as Germany must comply not only with their own country's regulations, but also with the EU's. As a result, they spend too many hours dealing with red tape, and the costs are unduly felt by smaller businesses. According to the report, 55% of small- and medium-sized businesses cite regulatory obstacles as their greatest challenge. The General Data Protection Regulation, for example, has made it nearly impossible for small technology firms to compete.