Europe still struggling with barriers to economic freedom

Europe still struggles with a variety of policy barriers to dynamic economic expansion according to James M. Roberts, Research Fellow at Washington DC's Heritage Foundation. In cooperation with the Brussels-based New Direction think-tank he launched the "2015 Index of Economic Freedom". The launch was attended by a large number of MEPs, European officials and policy analysts.

Geoffrey Van Orden MEP, President of New Direction, commented: "In its 21st year the Heritage Index continues to demonstrate its importance in highlighting the continuing struggle for economic freedom. Despite a marked increase in the average score since the Index began, an estimated 60% of the world's population live without economic freedom and we must continue to fight against corruption and inequality. As Europe continues to struggle with the consequences of the recession, Britain has a notably strong improvement– a reflection of its strong economic policy, which other parts of the continent would do well to follow. The impact of a legacy of the British rule of law was evident from the fact that the top four countries on the Index have that heritage."

Roberts pointed to findings in the 2015 Index of Economic Freedom, published annually by The Wall Street Journal and The Heritage Foundation indicating that growth in government spending is partly responsible for hampering even long-established free-market institutions.

“European economies are still struggling against self-imposed policy barriers, and it is not surprising that they have yet to realize their full potential nearly seven years after the financial crisis.” said Roberts. “A sound foundation, including a strong rule of law and low levels of corruption, exists to build more prosperous societies based on economic freedom. But, Europeans must make the extra effort to tackle unsustainable government spending and taxation if they wish to jumpstart stagnating levels of growth and economic freedom.”

The region’s score is still above world averages, but Index findings indicate that “growing tax and labor burdens, along with high public spending and market-distorting subsidies, have brought stagnant growth and mounting debt,” adding that “there is a serious need to cut spending.”

The Europe region includes 43 countries graded by the 2015 Index of Economic Freedom. Switzerland continues to be the only wholly “free” economy in the region according to the Index's criteria, with a score of 80.5. Nine of the world’s 20 freest countries are in Europe, and the vast majority of the region’s countries are considered at least “moderately free.”   Europe has three “mostly unfree” economies — (Moldova, Greece, and Russia) —and two “repressed” economies: (Ukraine and Belarus).

Several European countries had noticeable changes. Emerging from its sovereign debt crisis Portugal recorded the highest score improvement of 1.8 -- followed by Lithuania, which moved up 1.7 points. Poland, Croatia, Montenegro and Bulgaria also were among the world’s 10 most-improved countries. Meanwhile, Estonia rose by a dramatic three places in the 2015 Index rankings, becoming the first former Soviet country to crack the top ten.

But, the sovereign debt crisis continues to affect some countries. Greece continues to slide further in “mostly unfree” category, having lost 1.7 points. Slovenia, which came close to an EU bailout in 2013, had the worst drop of all European nations with a 2.4 point decline.

Taken as a whole, the Europe region still struggles with a variety of policy barriers to dynamic economic expansion, such as overly protective and costly labor regulations, higher tax burdens, various market distorting subsidies, and continuing problems in public financial management resulting from years of expansion of the public sector.

The result has been stagnant economic growth, which has exacerbated the burden of fiscal deficits and mounting debt. In many countries of the region, decisive policy action is needed to cut spending. Where such actions have been taken, progress is apparent. Three Baltic economies (Estonia, Lithuania, and Latvia) are on the move toward greater economic freedom. Overcoming severe recessions following the global financial turmoil, these young free- market democracies have sustained their openness to global markets and competition, pursued regulatory reform, and shrunk the size of their governments. Each has moved up in the Index rankings every year since 2012, outperforming many older members of the European Union such as Spain, Portugal, France, and Italy.

Hong Kong and Singapore finished first and second in the rankings for the 21st consecutive year, although only two-tenths of a point separate their overall scores. New Zealand, which logged almost a full-point improvement last year, moved up two slots and reclaimed third place in the rankings, outperforming Australia (4th) and Switzerland (5th).

37 countries, including Taiwan, Israel, Poland and Colombia, achieved their highest-ever Index scores. Among the 178 countries ranked, scores improved for 101 countries and declined for 73.

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