Europe’s Misguided “Growth Pessimists”

Such is the deep pessimism in Europe about the economy that the better the economy does today, the worse people think it will do tomorrow. This year has been an excellent one for Europe’s economic growth. Yet instead of thinking that the momentum building in 2006 will carry forward and make 2007 an even better year, Europe’s gloomy experts are predicting a significant slowdown. For them, it seems out of the question that Europe can have two good years in a row.

Of course, every year has its growth challenges, and 2007 will be no exception. What motivates – or frightens – the growth pessimists, in particular, are (1) higher European interest rates, (2) the slowing US economy, and (3) the increase in the German value-added tax (VAT) from 16% to 19% set for the beginning of the year.

But they are wrong to be frightened by these factors.

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