B..
i frankly do not understand why we should be interested in the "specific criticisms" of europeans any more than they should listen to ours of them.
imo, it's getting quite tiresome having to listen to one culture make criticisms of the other.
they (europe) have more than enough of their own problems to contend with (as do we)
scotlandonsunday.com
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Japanese disease may be catching
Bill Jamieson
NEXT month, EU heads of government will meet in Brussels. On a crowded agenda is a review of progress towards the goal of full employment. It was less than three years ago that a similar meeting held in Lisbon set the EU "a new strategic goal for the next decade - to become the most competitive, dynamic, knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion."
Even at the time this pledge was made, the reaction was one of scepticism and incredulity. Even assuming economic transformations could be conjured up out of meetings of politicians issuing proclamations - and no fewer than 17 different targets and objectives - how could such a goal be attained without a transformation in European economic policy?
In particular, how could any reform be undertaken of the continent’s highly regulated and rule-driven labour markets by leaders who owed their offices, in large part, through pledges to trade unions and vested interests to keep things exactly as they were and to resist reform à la Anglo-Saxon?
Three years on and Europe has come to experience a spectacular reversal of fortune in the economic realm. Through a combination of global trade slowdown and the persistence of structural barriers to job mobility and creation, the continental economies have suffered a dramatic slowdown, a budgetary deterioration and now sharply rising unemployment.
Across the EU 15, unemployment now stands at 7.7% on the OECD standardised measure, compared with 6% in the US and 5.2% in the UK. For the economies of the Euro-zone, unemployment is now at 8.5%. Of particular concern has been the rise in unemployment in Germany. Here it presently stands at 8.4%, against 7.7% in 2000.
Nor is there any sign of early improvement. Indeed, Die Welt reported on Friday that it had obtained a copy of the latest unemployment figures not due for official release until this week. This shows that 4.66 million are now unemployed in Germany - a rise of 40,000 on the month and a figure 370,000 higher than a year ago. This is the highest level of unemployment since chancellor Gerhard Schröder came to power in 1998.
This came hard on the heels of a report from the Ifo Institute, Germany’s respected independent forecaster, predicting that the economy will grow by just 0.9% this year - below the level that would allow government borrowing to meet Eurozone rules. This is by no means the lowest forecast. Royal Bank of Scotland economists have slashed their growth forecast for Germany this year to only 0.5%. Rising oil prices and monetary tightening implicit in the rise of the euro in recent months are compounding this slowdown.
Whatever the causes - and there has to be a searching examination of why it has been markedly worse in Germany than in most other G7 economies - this is a reversal of fortune now ominously reminiscent of that which has gripped Japan for a decade. It is not just that there will be no progress on reform on which to report next month; it is that the euro zone and its largest economy have gone backwards.
The blunt truth is that this summit is taking place against the biggest economic policy crisis for a generation. And the spectre that haunts Europe is not just one of an uncomfortable, cyclical slowdown. It is the spectre of Japan and of a policy gridlock that will condemn the continent to severe and prolonged stagnation.
Last week’s Treasury review of progress towards economic reform in Europe set out in the most factual and detailed terms why the question of UK membership of the euro is failing at least one of Gordon Brown’s famous ‘five tests’. And it is this document that, more than anything, makes the case against Britain joining the euro.
But on wider considerations, that is the least of it. Continental Europe is facing a policy crisis on three levels: a collapse of growth with rising unemployment; a serious breach of the Maastricht Treaty rules on government deficits; and a crisis of confidence in some of its leading financial institutions as stock market values have slumped.
Little wonder, on this perspective, that France and Germany have strutted across the world stage with their divisive approach to Iraq’s non-compliance with Resolution 1441. This has acted as a most effective diversionary tactic to draw attention away from a collective failure on the economic front. For the record, unemployment in France is now 8.8% and growth has slowed to just 0.2% in the fourth quarter.
Could Europe now be facing the fate of Japan - a lost decade? Lehman Brothers economist Russel Jones concludes probably not - asset price dynamics have been of a different and less damaging complexion, and macro economic policymakers "should have learnt from their Japanese counterparts’ mistakes". We live in hope.
But his assessment draws some uncomfortable parallels. Longer-term economic performance can be viewed as a function of two underlying features: productivity performance and demographics. The Treasury assessment of EU economic reform highlights poor productivity performance. It cites Eurostat estimates showing US GDP per worker running some 17% higher than in the EU 15.
Just as serious are the demographic comparisons - in particular the growth of those aged 65 and over. These show Japan to have an acute bulge of retirees over the next 15 years. But Germany also has a worrying profile relative to the US and the UK. As Jones points out, the importance of demographic trends goes beyond the physical number of active members of the population. Demographics are also instrumental in determining the broad nature of future pension and taxation liabilities. These, in turn, feed back into savings, taxation, investment and growth.
More immediately, there is a pressing case for further cuts in interest rates and in Eurozone rates in particular. The European Central Bank has been reluctant to act because of concern over the credibility of the currency and the need to establish a firm track record on inflation.
A related factor has been the breach of the Stability and Growth Pact requirement that member countries’ budget deficits should not exceed 3% of GDP. Some see in the bank’s slowness of response on interest rates as an attempt to pressurise member countries into structural economic reform of the type loudly hailed at Lisbon - but on which all too little action has been taken.
Next month’s Brussels summit is highly unlikely to have any more effect on the pace and scale of economic reform in Europe than the many that have preceded it. The best that may realistically be hoped for is a greater public awareness, once the Iraq issue has been resolved, of the depth and extent of Europe’s policy crisis. One can see why EU leaders want to bury the reality in more high-minded declarations. But complacent talk of ‘progress’ when the reverse is true cannot long delay the moment of truth. |
