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Inflation is eating Europe’s future – and it’s our politicians’ fault

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By Tobias Zander

The cost of food, energy and housing has risen dramatically in many European countries over the last two years. One group in particular is suffering as a result, one that is often overlooked in all the public discussion about “disadvantaged groups”: young people. Politicians and officials like to pass the blame around, but they must take responsibility for their part in it – out-of-control monetary policy has fuelled the inflationary crisis and young Europeans are paying the price for their poor decisions.

Many Europeans look at the rising cost of living and attribute it to external causes—usually Covid, Putin, or greedy businessmen conspiring against consumers. This is not surprising, as it is precisely this narrative that is spread by the political elite. Most companies have "taken advantage of the opportunity to pass on the higher costs entirely to customers", said ECB director Lagarde reproachfully.

 But it is precisely the expansionary monetary policy that she and her proponents have advocated for years that is the major cause of rising prices. An expansion of the money supply necessarily leads to an increase in both consumer and asset prices in the long term. However, this effect does not cause the same damage to all sections of society. Some groups suffer more than others.

 Students and young professionals suffer greatly from the rising prices of consumer goods, such as food, clothing, or electronics. They have naturally lower salaries due to their having less professional experience. Students often have an even lower income because they either do part-time temporary jobs alongside their studies or are dependent on their parents and often meager state grants.

Thanks to inflationary monetary policy, these young people now need to restrict themselves more than ever and no longer have the opportunity to build up financial reserves. Instead of being able to use their energy to create something new and great, they are the first generation since the end of the Second World War to have to reckon with the fact that they will have less prosperity than their parents. Disillusionment replaces youthful optimism.

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Rising asset prices are also hitting young Europeans hard. Young people usually do not yet own assets such as houses, stocks, or gold. Although their parents and grandparents can protect themselves at least partially against the devaluation of money by owning tangible assets, this option is not yet available to students and young professionals. At the same time, it gets more difficult to acquire these assets, which are becoming more expensive.

 Employers also have less capital at their disposal as a result of inflation. They are therefore hiring fewer employees or having to cut jobs. Who will be hit hardest? Inevitably, it’s young people who still have little experience in the field. They are therefore suffering a threefold penalty: they have no assets yet, it is tougher to build their assets from their income, and the latter itself is more difficult to obtain. As a result, monetary policy is taking us back to the feudal age, when financial success depended almost exclusively on family wealth and state privileges.

People are increasingly angry about wealth inequality and a lack of prospects. Unsurprisingly, younger voters in particular are attracted to demands for more redistribution and higher taxation from left- and right-wing populist parties. Perhaps to appease them, even "moderate" establishment politicians increasingly call for a wealth tax. But would this solve the problem? No, it would only take away productive people's wealth by force, thereby creating new and unjust social divisions.

 Every dynamic and growing economy comes with wealth inequalities and these are not immoral per se if they arise from productive work. Inflationary monetary policy reduces social mobility, disadvantages young people, and leads to truly unjust wealth inequality. A wealth tax is at best a way of combating symptoms, at worst a way of destroying prosperity. If we want to help Europe's youth, we have to tackle the root of the problem and fight the real disease, the inflationary monetary policy of the European states.

 If the continent should not become a dying region in the next few years, the inflationary monetary policy must be ended immediately. Europe's youth need hard money so that they can plan for the long term and build a future for themselves. Further monetary devaluation would result in millions of highly qualified young people leaving their home countries and Europe becoming one big open-air museum. Do we really want that?

Tobias Zander is a financial journalist and a policy fellow at Young Voices Europe. He previously studied History at the University of Potsdam and Philosophy, Politics and Economics at the CEVRO Institute in Prague.

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