Europe shows sustained growth in economic freedom

Of the world’s 11 freest countries, six are in Europe, according to the 2006 “Index of Economic Freedom” published by the Heritage Foundation and the Wall Street Journal and launched in the UK at the Institute of Economic Affairs on 25 January 2006.

“Of the countries in this region, 31 exhibited an increase in economic freedom while only ten experienced a decline”, editor Marc A. Miles said at the launch. This continues last year’s trend, where, overall, the scores of 30 European countries improved, while only nine countries in the continent lost ground.

The study has shown that countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than those with less economic freedom.

The study is based upon an analysis of 50 independent economic variables divided into 10 categories: trade policy, fiscal burden of government, government intervention, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation and informal market activity. Countries are rated between one and five in each category, one being the best and five the worst. The ratings are then averaged to produce an overall index score.

The United Kingdom, currently the fifth freest economy in the world, has seen a 13 per cent increase in economic freedom since the Labour Party came to power in 1997. While the UK advanced faster than the United States, whose economic freedom grew only 4.6 percent during the same period, it lagged behind the European countries in the top 10, whose growth averaged around 22.8 percent.

Ireland surpassed Luxembourg as the freest country in Europe in the 2006 Index, based on an improvement in its fiscal burden score and sustained low inflation. Italy, on the other hand, was Europe’s biggest loser and saw the Index’s biggest fall, second only to Iran, due to a deterioration in its banking and finance, property rights and informal market scores. The UK is placed joint-fifth in the rankings.

Estonia, which had seen consistent growth over the last 15 years, fell back from being the fourth to the seventh freest country in the region