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Is Booze Causing Europe’s Economic Woes?

  • by
  • September 20, 2011
  • 8:30 pm
Is Booze Causing Europe’s Economic Woes?

It’s a long known economic joke that the only recession proof investment is alcohol — no matter what happens, consumption never seems to lag. Oddly, the opposite is holding true for European liquor outfits, which have had to cut hundreds of thousands of jobs because of declining demand and increasing prices.

That’s right, Europe is experiencing beer stagflation, the rare combination of economic conditions where prices go up despite decreasing quantity sold, much like oil in the 1970s.

The New York Times reports that “Europeans are saving money by drinking at home rather than in pubs, which is costing jobs in the hospitality industry and depressing tax revenue.” They cite an exhaustive report by the trade group Brewers of Europe, which puts the total job losses at 8% of the industry, or 260,000 workers. This is wildly disproportionate to the rest of the European economy, which has only seen a 2% rise in unemployment.

There are two primary reasons why the alcohol industry has been disproportionately affected. First, as noted above, consumers are tired of high prices at bars. Second, the Times explains, “some of the decline is due to steep increases in the value-added tax imposed on beer by some countries, including Greece.” The VAT therefore leads to higher prices, much like a traditional supply shock.

These findings also explain some of the recent rumblings from tourists and beer enthusiasts alike at the 2011 installment of Oktoberfest. Beer prices have been inflating at 1.3 percentage points above the Eurozone average, leading to record prices, which are topping out at 12.25/liter. It looks like this is pure stagflation — consumers are seeing higher prices, but producers are having to cut back production and everybody loses.

Even though this is a lot of bad economic news, here’s to hoping that the EU countries try to head this crisis off with a little bit of pro-consumer stimulus.

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Photo credit: whatleydude's Flickr stream.

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37 comments

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1:52PM PDT on Sep 27, 2011

I would be interested in seeing if people are drinking the same amounts.

Britain is suffering from a long alcohol epidemic, and if this results in people drinking less, it can only be good for the NHS, and society in general.

PJMcNeill

2:36AM PDT on Sep 25, 2011

Booze is so highly taxed in Britain and then the pubs add their money on top and that just prices out the people who propped up the liquor companies in the first place. The poor! 
A pint of beer in England costs about £3.50 (5-6 bucks) of which the government makes about 2 quid. Beer is cheap, costs almost nothing to make. Then it's heavily taxed. People resent that, it takes all the fun out of it when you have to work longer to enjoy a drink. 
After the public smoking ban a lot of drinkers who are also smokers stayed at home and drank cheaper supermarket beer, which the government is eyeing up now to make more expensive, it's as if they don't want the working classes to have fun! (in the uk there are only 2 classes, working class and upper classes. Middle classes here work like medieval peasants)
So a lot of smokers/drinkers are bypassing the government and now smoke marijuana, which seems more prevalent than ever before. And is the drug of choice for many. The natural enemy of alcohol, though like many people in England I have got into the habit of drinking lager and smoking weed.

2:57PM PDT on Sep 23, 2011

The article talks of customers being tired of high prices in bars, or "down the pub" to put it in English. It tends to ignore causes, apart from tax that is.
Take the case of cider. Cheaper to produce than beer, and with a lower rate of tax. So the big breweries do a PR and advertising campaign to promote how "cool" cider is, and do it very successfully. Now "designer" cider costs more than beer over the counter. RIP OFF!
Pubs and bars going out of business through lack of profitability, ask the Pubcos about that one. There are plenty of prosperous free houses, and these days, many of the brewery "tied houses" are doing OK, but the pubcos are like greedy parasites which can't stop sucking until the host is dead.
Greed is good...good for nothing...which is all that will be left before too long.

8:11AM PDT on Sep 23, 2011

PS: the article also fails to mention the big impact that banning smoking in bars has had. In the UK alone it was reported that an average of 5 pubs a week were closing because of the ban, which is the main reason people are drinking at home, and 2 years ago they had already lost 120,000 jobs, & the closings have continued to the present day. Also the tougher drinking/driving laws with longer sentences & bigger fines has taken a toll, fortunately.

7:56AM PDT on Sep 23, 2011

The article doesn't mention the fact that alcohol consumption is dropping all over Europe as medical research is now concentrating on the harmful health effects of alcohol - eg, wine consumption in France has dropped 50% from a couple of decades ago. Two new studies just this week found every drink of alcohol harms the brain & that red wine is good for you is a myth:

http://in.news.yahoo.com/more-drink-greater-damage-brain-140621478.html

http://www.dailymail.co.uk/health/article-2038211/Alcohol-DOES-cancer-say-scientists.html

And there are more appearing almost daily. Alcohol IS the new tobacco. Health warnings are being placed on alcohol in more & more places. The WHO says alcohol kills more than 6 times more people each year than all other drugs combined.

A UK study found that alcohol is the most destructive drug to the individual & to society, more than even crack or heroin.

Alcohol's days are numbered as it becomes less socially acceptable with each passing week. If you need alcohol or any other drug to have a good time, you need help.

10:27PM PDT on Sep 21, 2011

thanks for the article

9:42PM PDT on Sep 21, 2011

Deborah V.
9:18am PDT on Sep 21, 2011
It is also much better and safer to drink at home and this, at least in Canada, is certainly happening because of the very strict drunk-driving laws.


Perhaps the clever entrepreneur could simultaneously open a tavern and a cab service?

8:07PM PDT on Sep 21, 2011

Beer is considered "food" in Germany and has been for centuries.

3:47PM PDT on Sep 21, 2011

Interesting. Thanks for posting.

3:20PM PDT on Sep 21, 2011

Alcohol is a universal lubricant, it allows tons of money to be made off of other people's suffering. When times are good, people drink to celebrate, when times are bad, they drink to forget their troubles. THAT is why the taxes are so high on booze.

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