Jay,
I read an article (some time ago now, maybe 2 years ago or so) that in retrospect was actually quite prescient as regards the German and French economies.
As I recall, the author had (quite accurately) set out the conditions that each European country had to agree to in order to adopt the Euro as a currency. Because of the large percentage of government spending that went to social programs, the author pointed out that both Germany and France would encounter great difficulties in continually meeting the rather strict limitations put on their government spending by the European Central Bank.
One thing he point out was that any crisis (out of the range of normal spending) would have enormous impacts on the governments, because both countries had so little leeway for crisis situations (thin margin for error in "predicting" future spending). Germany did incur just such an event with the severe flooding some months ago now.
The author also pointed out that, historically speaking, the French and the Germans had the lowest totals for consumer spending when expressed as a percentage of household net worth, or as a percentage of gross domestic product. In short, the French and the Germans are not prone to impulse buys at the marketplace, or shopping in overpriced malls, or excessive purchases of luxuries.
Both the Germans and the French are/were savers, but not nearly as prolific as the Japanese used to be. However, individual investors in both countries tend towards domestic investments over foreign investments, and when foreign investments do occur, they are much more likely to be through mutual funds, or indirectly via a bank savings account (where the bank invests in foreign equities) as opposed to directly investing in US$ denominated stocks and bonds.
So, as the author correctly predicted, when the US markets fell, the French and the German individual investors were not as directly impacted as say some Asian individual investors were. However, indirectly both the French and Germans suffered losses in their domestic equities (who in turn had lost money in US equities), and indirectly in their bank and insurance returns. And the reaction to the bad news by consumers in both countries was easily predictable, as they simply shut their wallets tightly, reduced consumer free spending, and saved money in what they see as less volatile assets (perhaps some folks use precious metals, some still use bank and insurance accounts, others may increase mutual fund holdings, and I assume there are those that simply stuff the old mattress).
One other aspect of the report had to due with the large number of social programs in both France and Germany that has profoundly altered the attitudes of the working people, and which is paid for by systems of taxation that in essence transfer monies from the workers to the social programs, which in turn pay the monies out to program recipients. Social programs have slowly gone from being perceived as a form of assistance to being perceived as a sovereign granted right, not to be meddled with by politicians or anyone else. Many of the people in both countries have little or no plans to meet future needs in old age other than the social programs that currently exist. And both countries face the strong prospect of a decreasing population of working age people to support those older folks that have retired. (I might also point out that a very similar workers' attitude exists in the USA regarding social security, and the US government has very similar problems to France and Germany in this regard, as there are fewer and fewer workers left to support a burgeoning list of recipients.)
Given the pressures on the two governments, and the downright dismal confidence in their economy by the working people, it shouldn't be surprising that their domestic equities and financial institutions are currently having some problems. I think that whatever the two nations decide to do, it will provide an interesting lesson for the rest of the world, either providing a road map for recovery, or giving a prime example of what not to do. No way of telling for sure which way things will go, or how things will be perceived.
KJC |
