Lafayette says...
Article: What’s behind Europe’s comeback? It’s a complicated story, probably involving a combination of
deregulation (which has expanded job opportunities) and smart regulation..
I wish we could make macro-statements about Europe, as we can about the US – but this is sadly not yet
the case. I am heartened, nonetheless, that macro-statistics are more and more being aggregated into an “EU”
, which is much more comparable than just France or Germany (or France & Germany) to the US.
But, Europe remains a patch-work of diverse statistical parameters. We had 5% unemployment in the UK,
not so long ago, against 10% in France and Germany. We have very large differences in inflation rates, even
under the single currency, which makes the job of the European Central Bank hair-raising.
And, looking into the future doesn’t change all that much. Just a year a go everyone was crowing about
Germany’s export success in the face of an appreciating euro. A week ago, the head of Germany’s largest
business association thought aloud that repeating past performance was going to get more difficult in the future.
Dislocations are still happening at an alarming rate. Foreign-make cars (both near and far east) are widening
the breach in Europe.
Airbus is still into restructuring and, if the redundancies have hit very hard the sub-contractors, they have not
been felt by direct employees. Still, no one would be surprised to see redundancies at the company itself if the
euro keeps rising. It got over-bloated with the typical management hubris as seen stateside –
that something good automatically must last forever.
Ditto for the rest of European industry for as long as the dollar remains as week as it is. Europe’s largest export
market is the US, and with the high cost of its goods in the US, coupled with an eminent recession stateside, no
one is expecting great results for exports. So, everybody is scrambling to get their act together in China.
Let’s hope they will not be disappointed, but it is entirely possible that the Chinese will not be waiting with open
arms. In fact, what the Chinese want are key industrial partnerships -- with technology-transfer such that they can
replicate it all by themselves and resell to the world.
Yes, Europe has done much to deregulate its industries, but it has done so in the European fashion. Which means,
no brusque changes. Europe evolves customs/norms, it doesn’t revolutionize them, for fear of causing mass social
disruption.
And, finally, there is this fundamental difference in mentality. In the US, when it comes to finger pointing, we say
“it’s the economy, stupid”. In Europe, we say, “It’s the stupid government, stupid”.
Europeans still trust the state to “get it right”. That mentality has to change. The "cocooning" of the postwar years
are over and past, but too many people still long for their return.
Posted by: Lafayette | January 11, 2008 at 04:11 AM
Lafayette says...
LD: And don't forget the costs to Germany of re-unification - it required a special tax and the mothballing or
suspension of many infrastructure projects
Posted by: Lafayette | January 11, 2008 at 07:21 AM
Lafayette says...
anne: The integration of a terribly poor East Germany in West Germany since 1990 has been a remarkable
success
It was an imperative, yes. But, the manner in which it was done was less than smart.
Helmut Koll, afraid that the Osties would flock into the West, offered them an parity exchange (of 1 Oestmark
for 1 Deutschemark) of currencies. The consequence was, instead of having an economic competitive advantage
over the West of Germany, they inherited its disadvantages in terms of total wage costs. Which are, still, some of
the highest in Europe.
The consequence is that a long and tireless effort to attract business to the East of Germany was hopelessly
compromised. East Germany could have been like the Czech Republic today, in terms of output and unemployment.
But, it isn't.
Posted by: Lafayette | January 11, 2008 at 10:04 AM
you ( and anne and all others who have this view ) are right, the German re-unification was poorly managed and
the decision to raise the EastGerman wages faster than the productivity was a mistake. But everyone who had a
minimum of economic knowledge knew this and Oskar Lafontaine ( former leader of the Socialdemocrats and now
leader of the new Leftparty ) and others warned explicitly before this step and the precipitous integration of the
former GDR into the WestGerman economy in general. This was a purely political decision. That's the problem
when you've a democracy. Politicians must ( should ) follow what the people demand and the majority wanted
a fast re-unification and the fast assimilation of incomes.
- Slower economic assimilation, a more competitive economy in the East but sudden and uncontrolled mass migration
from the East to the West, because EastGermans wouldn't wait until the East reaches WestGerman levels - with
the corresponding social and economic costs for the West and the complete breakdown of social structures in the
East ( Citizens of the former German Democratic Republic were always treated as Germans and had formally the
German (WestGerman ) citizenship long before the re-unification.).
- Or less migration, the relative preservation of social structures in the East, faster growth of incomes and higher
financial transfers but a dramatic loss of competitiveness of the EastGerman economy and the resulting high
unemployment.
Not an easy choice. And "investors" from WestGermany and other parts of the world ( for example the USA )
contributed their share to the liquidation of the EastGerman industry, cashing in public subsidies and making a
fast buck.
Nevertheless, the infrastructure in EastGermany nowadays is really good, better than what I've seen in most parts
of the United States. The problem is it's financed mainly from the West and a self-supporting economy in the East
will probably need another sixteen years or so.
And finally a few words on one of your favorite hobbyhorses, the "state fixation" of Europeans ( obviously coined
by your experiences in France ). My impression is not that Americans are less "state fixated" than Europeans. They
are it simply in a different way. While Europeans ( on average ) want a strong, effective welfare state and a government
which finds a fair balance between the different forces in the economy, Americans ( on average ) are more concentrated
on a powerful government which protects and represents the interests of the United States in the world with military
means and a "strong" police state which controls and contains the social outcomes of the "free market" society and
reminds many Europeans of a society in a pre-stage of civil war. America is in my view decades behind in building a
balanced civilian society.
And the current discussion about tax cuts or government spending to avoid a possible recession or government
interventions to prevent the bankruptcy of hundreds of thousands of US homeowners is really not a proof that
Americans are less "state fixated" than Europeans.
Posted by: german_reader | January 11, 2008 at 10:05 PM
german_reader says...
my impression is that the only ones who are nowadays impressed by the "American" model are conservative
Americans themselves. Nearly all others see it as no longer competitive, unsustainable ( in the financial and ecological
sense ) and as a country which has lost its balance. Really not a model.
And your comparison of price levels in Europe and the United States is really not representative.
First of all: All the cities ( Zuerich, Prague, Paris, Vienna, Budapest ) you cite are larger cities and capitals ( with
the exception of Zuerich ) with price levels above the national average. It's like measuring the price levels in the US
by looking at the price levels in Washington D.C., New York or San Francisco. I think an American coming from rural
Idaho or Wyoming to New York or Los Angeles could have the impression that the US is a pretty expensive country.
Second: As others comments have already mentioned, the current exchange rate. We have here in Germany reports
that many employees of the US army in Germany, who are paid in dollars, are really struggling to finance their costs
of living because the declining dollar is eating up their wages. That's a cyclical problem.
Third: You and many other conservatives concentrate on consumer goods. But for the average person or household
ALL costs of living are decisive. And the current Purchasing Power Parity rate between the euro and the dollar
( 1 euro = $1.1-1.15 ) suggest that the cost of living in Europe is on average slightly lower than in the United States.
We may pay more for consumer goods but pay less for health care or education.
Fourth: Prices for energy or consumer goods in Europe are higher, because we tax them higher than the US. That's a
political decision. We don't see maximal consumption as a natural human right and want consumption more taxed
like other forms of ( in this case passive ) economic activity. And taxes are a good way to encourage more sustainable
ways of economic behavior and less wasting of natural resources.
And fifth: If you compare the tax levels or living costs in Europe and the United States you should include all forms
of expenditures ( public and private ) for a certain good or service and compare them to the quality of the result.
America for example pays more for health care than any other nation but has 47 million uninsured ( plus 20-30
million under-insured ) and poorer health care outcomes by most measures. The total costs ( public and private )
for many services in the United States are often as high or higher than in other nations, the results weaker ( for
example American high school students rank according to the PISA study of the OECD at the lower end of
industrialized nations ).
And not at least the US "model" externalizes many costs in the form of social exclusion, high crime rates, lower
life expectancy or higher consumption of natural resources. Europe tries to internalize most of these costs in
its system. Comparing only the headline numbers is like comparing apples to oranges. The traditional socio-economic
balance sheets often paint a very imprecise picture of the "real" costs.
Your hint to Turkish immigrants in Germany is correct. Germany has a problem with the integration of immigrants.
We could learn a lot from countries such as Canada, Australia, Switzerland or the Netherlands which seem to do a
better ( not perfect ) job in integrating their immigrants. But the United States seems to rank in this regard according
to most studies I've seen at the lower end of rich nations, even below Germany. And the share of the foreign born
population ( legal + illegal ) in the US is really not extraordinary. So no advantage USA.
Posted by: german_reader | January 11, 2008 at 11:24 PM
Germany and other European nations may be much denser populated than the United States but the United States
has a fast growing population while many ( not all ) European nations have stagnant or declining populations.
Germany for example needs immigrants to hold its population more or less stable, especially if the birth rate of the
native population remains as low as it is ( we "reform" until we die out ). The United States on the other hand has
already problems with some resources in some regions ( for example in Arizona, Georgia or California ). That's more
a problem of the regional distribution of the US population and the resource wasting life style of Americans than a
real over-population. But fearful natures could have the impression that the United States is already over-populated.
In summary I would see the US and Europe confronted with similar gains or burdens from immigration.
Posted by: german_reader | January 11, 2008 at 11:55 PM
Lafayette says...
g_r: I would see the US and Europe confronted with similar gains or burdens from immigration.
Agreed. Both regions will need immigrants. Demographic analyses show that natural population rates will not
supply the numbers needed to sustain uniform economic expansion.
But, the question with both regions is "migration to which they must submit" or "migration that they select".
The people they are getting are not the quality that they need necessarily. And, unlike the Mareilitos of Cuba,
America is no longer in a position to absorb endlessly just anybody. Neither is the EU in a position to find jobs
for just any African who manages to get in.
Twenty percent of all trained African doctors work outside of Africa. Where might one think they work? In India?
I doubt it. Many in Saudi Arabia and most in the EU or the states.
Posted by: Lafayette | January 12, 2008 at 12:43 AM
Lafayette says...
g-r: We have here in Germany reports that many employees of the US army in Germany, who are paid in dollars,
are really struggling to finance their costs of living because the declining dollar is eating up their wages.
I know some of the people of which you comment. They have most of their victuals and housing supplied to
them "on base" and "in dollars". There's even American fast-food outlets on most large bases and the prices are in
dollars.
Yes, those who strike out to assimilate into a German life-style "off-base" have a real problem with the strong euro.
I hear the same complaints from Yanks in France and Italy, so the pain is somewhat universal.
And, frankly, this is not the first time that a European currency has had the advantage of the dollar. That situation
will change, exchange rates being cyclic.
Posted by: Lafayette | January 12, 2008 at 12:52 AM
Lafayette says...
g-r: This was a purely political decision. That's the problem when you've a democracy.
You're right; Kohl feared that the East would turn overwhelmingly to the Social Democrats.
A more astute politician would have taken the risk that the East Germans, so tired of Socialism, would support
the Christian Democrats -- at least at first to see what that party might do for them. But, what Kohl did was to
seduce them with fools-gold.
Eastern Germany had a Window of Opportunity that opened and closed in fairly short fashion.
NB: I am surprised that Fontaine would have demonstrated such wisdom. I must take your word for it.
Posted by: Lafayette | January 12, 2008 at 01:33 AM
Lafayette says...
anne: When thinking of an energetic multi-taking Nicholas Sarkozy, I only think of a Sarkozy juggling women, which
is harder than juggling cigar boxes especially on the women
I won't make any apology for any politician, and particularly not for Sarkozy. I do think, given the present condition
of its political class, he's the best person for the job in France today.
That does not excuse him from his overt mediatization of both his ex-wife and his new one -- for which the French are
laying into him thickly.
The French were excluded from the fact that Mitterand had a child of a mistress. And, when they knew, they didn't
give a damn. (The French were horrified when Clinton was laid into for the Monica affair. They felt, correctly, it was
a matter between him and his wife and certainly not politics.)
He seems to think the French will take a liking to an American style presidency with all the media hype and a touch
of glamour here and there.
France is far less prudish about extra-marital affairs and the figures show that just about as many women are
unfaithful to their husbands as vice-versa. Sex is something personal, so when a President goes out of his way
to employ an already highly mediatized beauty to his own mediatic ends, they blanch.
Frankly, he seems to be displaying his personal embarrassment at having been dumped by his ex- for another man.
Carlo Bruni and his ex- look remarkably similar.
In fact, if you saw footage of his recent visit to Petra in Lebanon, with Bruni's son on his shoulders, what is stunning
is the fact that the press was not at all pleased that the young boy was covering his eyes so as not to be seen.
Obviously a smart four-year old, if he understood he wanted no part of that charade. And, the mother came to his
rescue by claiming him back.
PS: His ex- is in a court battle to prevent the publication of a book where she (supposedly) called him a "twit
surrounded by macho twits" and "not fit to be president". She denies ever having made these remarks.
Posted by: Lafayette | January 12, 2008 at 06:18 AM
Lafayette says...
Farrar: I agree that his military campaigns should easily tip the balance of our judgement to an overall negative.
You (plural) are corresponding about an historical figure of which, in fact, you know very little. He was not born
French, but Italian. He left Corsica to make a career in the French Army. His first campaigns, that made him a
notoriety, were in Italy. In fact, the use of his family to run Italy was the first example of a Mafia family there.
He was a complex character and a workaholic. What he did for France was much larger than just his war making.
The following is from France.com about him:
Napoléon instituted several lasting reforms in the educational, judicial, financial and administrational system. His
set of civil laws, the Napoleonic Code or Civil Code, has importance to this day in many countries. The Code was
largely the work of Jean Jacques Régis de Cambacérès, who held the office Second Consul under Bonaparte from
1799 to 1804.
The Napoleonic Code, btw, is still in usage to some extent in Louisiana ...
Yes, he was a megalomaniac who thought he could bring Republican values to Europe by dominating it militarily.
Let's not forget that he was an ardent supporter of the French revolution and its values. If he walked into the
rubble of that Revolution to clean up the mess, it was because the country was tipping into Civil War and, in fact,
to save it from those who wished to restore the monarchy.
Even though the Bourbon lineage was extinct -- the Revolutionaries having guillotined Louis XVI (as well
as Marie-Antoinette) and let his surviving son rot to death in prison at the age of nine years).
That Napoleion became its Emperor is probably because he realized the French, at that time, were incapable of
governing themselves democratically. Of course, that is my personal interpretation.
A good book worth reading on Napoleon is by Max Gallo (MacMillan Publishing, ISBN 0330490036).
Gallo, an ex-communist, gives a well balanced rendition of the man, both his imperial greatness and his human
foibles.
Posted by: Lafayette | January 13, 2008 at 02:05 AM
german_reader says...
Just for fun a few additional numbers. As always you find different statistics for all and anything.
Median hourly wage without benefits Germany ( 2004 ):
14.29 euros / $15.72 PPP, WestGermany 14.95 euros/ $16.45 PPP, EastGermany 11.25 euros / $12.38 PPP.
Source: "Wachsender Niedriglohnsektor in Deutschland - Sind Mindestloehne sinnvoll?", DIW Berlin,
Berlin 2006, page 3.
Mean hourly wage without benefits for all employees Germany second quarter 2007:
18.21 euros / $20.03 PPP WestGermany, 13.05 euros / $14.36 PPP EastGermany.
Mean hourly wage without benefits full-time employees:
18.79 euros / $20.67 PPP WestGermany, 13.27 euros / $14.60 PPP EastGermany.
Mean hourly wage without benefits part-time employees:
14.56 euros / $16.00 PPP WestGermany, 11.79 euros / $12.97 PPP EastGermany.
Arbeitskosten/
Bruttoverdienste/Aktuell,templateId=renderPrint.psml
Posted by: german_reader | January 13, 2008 at 06:53 PM
Lafayette says...
Hourly wage means little in terms of comparison for purposes of understanding disposable income. Annual
hours
worked differ enormously around Europe, as g_r has noted.
Annual income is a better figure. Of course, annual net (of taxes) income is the best.
Posted by: Lafayette | January 14, 2008 at 12:53 AM
Lafayette says...
And, it should be the aggregate figure for the EU compared to that for the US.
Not on a nation by nation basis (Germany vs the US, or France vs China, etc., etc.) Any other comparison is
between apples and grapes - both are fruit, and the comparison ends there.
If anyone wants to compare economically France with California, that's their business. I can't imagine what that
particular comparison would mean, however.
Posted by: Lafayette | January 14, 2008 at 12:57 AM
german_reader says...
come on. You should be above that. I think you're intelligent enough to know it better. As "disinterested observer"
and "Pitt" have shown even after tax average annual wages are as high or higher in many European countries than
in the US. With less working hours, more vacancies, paid sick leave etc..
And if we are at comparing "apples and grapes", must I really remind you that many European countries have
suffered under right wing ( Spain, Portugal, Greece ) or left wing dictatorships just a few decade ago? And
especially Germany has been very successful in destroying its wealth stock several times in its history. That
explains much of the difference in personal wealth between the US or Switzerland and Germany.
Besides, after years of exaggerated wage restraint Germany ranks at the lower end of Western European countries.
How about comparing the EU 15 plus Norway and Switzerland to the US? Is that similar enough? You'll find that
the results in most cases are not much different.
As I said, if Americans have more income, its because they work longer hours, not because there system is more
efficient.
Posted by: german_reader | January 14, 2008 at 07:44 AM
Lafayette says...
Cy: It's rather that people were extremely dissatisfied with the leaving government
It is true that Chirac had disappointed the French. Chirac had been voted in for Change, and he backed off after
the first street demonstrations against his reform legislation. (Mounted by Communist agitators, often with the
naive connivance of bored Left-bank students.)
Chirac settled himself and France into the political / economic immobility that characterized his entire tenure in
office. The guy, once known as the Bulldozer of French politics, had become a tired man.
Sarkozy, smart as he is, decided to exploit this fault. Throughout his campaign, he had the courage to do what
NO French politician had ever done. To explain pedagogically what he would do and how he would do it. His
political campaign was not just the usual sloganeering, but pointed ideas to attack specific problems. It was
refreshingly limpid.
Segolene, on the Left, hadn't a clue as to what she would do or how she would do it. How could she know? Like
the typical academic ENArque, she had never spent a day outside of some beurocracy in the real world in a real job.
So, Segolene opted for the disastrous campaign tactic of destroying her competition's reputation. EVERY French
politician has tried this in the past -- and the French have finally become inured to it. Telling people how bad your
opponent is does NOT make you any better.
Otherwise, Segolene hadn't a clue as to what was wrong with the country or what to do about it. Her nostrums
where pathetic hand-me-downs from decades-old Socialist dogma, i.e., "protect our acquired gains" -- when it is
exactly those "gains", in terms of labor sclerosis, that have torpedoed the French economy.
Which is why Sarkozy won the election. And, rather than sit around waiting for solutions to happen, he prompted
them. His government has been the most open of any French government since deGaulle. It has tried to negotiate
with the Unions new rules, but will legislate them if necessary.
And, frankly, the challenge is enormous. It takes 2.5% of economic growth to generate jobs in the French economy.
That aint gonna happin. France will be lucky to get barely 2%. So, off he goes, Nicholas, to find the business. He
signed billions of dollars worth of contracts in China and with Libya. And, he is presently in the Middle-east to
prepare for the signature of even more.
Nobody saw this coming? And, yet, it was all too obvious. He had asked Anne Lauvergne, CEO of Areva (French
nuclear generator builder) to join his government. She refused, supposedly because Areva was on the point of selling
some huge contracts internationally. So, instead, he decided to take one of a handful of Strategic Products (which
France has in its high-tech handbag and with which it has a clear knowhow superiority) and off he went to sell it
along with his friend Anne.
And, it has worked splendidly to show the French people that he is willing to pursue his objectives in any way
necessary -- and not wait for the solutions to present themselves magically on a sunny day.
Cy, open your eyes. You are no less an observer of French politics than I. It is all so limpidly obvious, what is
happening. Stop fixating on the dark side of political manipulations. (EVERYBODY does it, both on the Left and
the Right. In America and in France.)
The West is at the end of paradigm (that of the Industrial Age) and the passage to the next (that of the Information
Age) is extraordinarily difficult. Old customs are hard to get rid of, but economic / political reform is the Only Option
that gives us a clear chance of maintaining our lifestyle.
Otherwise, believe me, the Chinese (et al), who have already eaten our lunch, will start eating our supper as well.
Posted by: Lafayette | January 15, 2008 at 12:09 AM
Lafayette says...
Just look at the "New Generation" as typified by Arnaud Montebourg or even further to the Left, Olivier
Besancenot. They're just as whacko as the "elephants" who remain in power.
But, it is interesting to consider "why"? From what ethic or cultural value might spring the source of power of
the Left and the Far Left in France?
Perhaps it is a hold-over from the Revolution, but I suspect strongly that the French have a innate aversion to
not only money, but those who accumulate wealth. I am almost sure that they do not have the same reverence
for "success" as an average American. The rich do not inspire emulation in France; quite the opposite, in fact.
You cannot imagine the force of the simplistic characterization of "Them" (the plutocrats) sersus "Us" (the poor
and exploited worker). The latter comes directly out of Marxist dogma, and they swallow it hook, line and sinker.
But, the French are far from being Marxists. They simply want a society in which everyone has a mediocre but
fairly standard mean salary/income. From this derives their desire to reduce the extremes in wealth; meaning no
poverty and few rich. From this derives their common willingness to accept high levels of taxation. (And, that aint
all bad.)
Also, the Socialists haven't a clue as to how a modern economy works. Today, it is being announced that Sarkozy's
ratings are in the red, for the first time his Presidency. The peacock probably deserves this comeuppance? He's
played with the media fire and he's been burnt?
But, no, that's perhaps wrong. Supposedly, the analyses do not point this as the overarching reason -- which is,
rather, Purchasing Power. The French thought that the New President, once in power, would dictate, legislate or
accomplish by smoke and mirrors an enhancement of their standard of living. He's been in office 8 months and they
figured he's had about enough of a honeymoon on that question.
That the sclerosis of the French economy, which has been accumulating for a quarter of a century, would evaporate
like the morning dew the day after Sarkozy's installation at the Elysee Palace.
Purchasing Power enhancement betters a lifestyle. ALL economists know, or should know, it is a derivative of
Economic Growth. As the economy generates wealth, more of that wealth is shared by all. (And, with French
taxation, believe me, that is the truth. More money in peoples' pockets and it is spent. More money in the state
treasury, and it is spent on Public Services in France.)
The French have been "cocooning" since the late 1960s, when all European economies were basking in economic
growth behind a protective barrier of common import tariffs. That wall came down in the 1990s, resulting from the
GATT negotiations. It has been a decade since, but the consequence has hit Europe squarely -- in the jobs market.
However, the French have NOT understood the paradigm shift. Many think that their little world should come back
to that of their parents and their childhood a quarter of a century ago, when there was far less job precariousness
(which affects the young) and, seemingly, enough money to go around (which affects the retired).
But, why should one complain about an "economic phenomenon", when it is soooooo much easier to blame a PM
or a President or a political party. When you're ignorant of reality, the latter is easier than pie à la mode.
(Je pense comme une nouille, donc je suis. De Lafayette du Blogue. ;^)
Posted by: Lafayette |
