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Black economy keeps EU snail slithering along

It is a common view, especially in the US, that continental Europe is shackled by big government and a lack of reform. The corollary is that its economy and its stock markets will underperform those of the US or the UK.

It is true that Europe's long-term growth and return on equity are capped by the size of the state and an inability to free-up product and labour markets. However, Europe's social architecture reinforces stability. It might not be equitable or optimal, but it works, after a fashion.

European households are rich in safe assets and save rather than spend. That means a balanced current account. And some reform is taking place. It is driven more by the forces of globalization than the political process, but it's happening, if at a snail's pace.

 Current account balance ($bn)
 * estimate

Slow but sustainable Ironically, the pace of reform does not matter that much because European citizens and businesses are bypassing big government and rigid labour markets through an ever-larger black economy that generates hidden income.

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