With America's report card returning such grim results and the possibility of a fascist president once again being elected, one is tempted to look elsewhere in the world for examples of societies to follow. Naturally, we look to our European cousins, for, as we know, they have perfected the art of life. A shorter work week. Longer vacations. Stronger labor unions. Generous unemployment and welfare benefits. Universal health care. Peace-loving governments. Why can't the US be more like Europe?
If we go on for long this way, however, reality is apt to slap us in the face. From our Irish correspondent in Munich we learn that things are not going well for that more enlightened, sophisticated continent to our East:
Up to 40,000 young Germans are now living in the Bay Area. Officially, 110,000 people left Germany for good last year, but the real figure may be double that as many of those who departed didn't go thorough the "deregistration"
procedure required by the authorities. An imploding economy, relentless taxation, mass unemployment and encroaching gloom has got them heading for the exits.
The situation must be terrible in Europe's largest economy, if so many Germans are flocking to a country that can't manage better than a series of 'D's on its report card. Shouldn't we warn them that they are headed into a hail of bullets, both literal and figurative? (A wag might ask how many Americans have fled the other direction to escape persecution and economic ruin in the US.)
To such a pass have things come that even Guardian columnist Will Hutton (a socialist, by some accounts) is compelled to worry that Europe is reaching crisis point. It seems that France and Germany, those two paradigmatic paradises of social democracy have run up hard against the wall of economic reality. Unemployment in both countries is around 10% (almost 2x the US's), and the EU's economy is expected to have grown in 2004 by 1.7% versus the US's predicted 4.2%. Does the US really want to be more like Europe?
So what has happened to cloud the brows of Western Europe's happy sophisticates? Hutton has the right answer in general terms, and you should read the whole of his article, but we can get more economic detail from this Bloomberg article. First, France:
In France, unemployment rose to 9.9 percent in June. Chirac's government says a law reducing the statutory work week to 35 hours from 39 hours has curbed households' purchasing power, hurt government finances and driven some companies to relocate abroad.
Even so, Chirac said last month he won't revoke the legislation introduced by the Socialist government that preceded his. Instead, he plans to encourage labor unions and business federations to come to their own arrangements as he seeks to
prevent companies from moving jobs abroad.
"We need less taxes and more freedom for employers so that they can negotiate labor rules with their employees," said Jean-Francois Roubaud, head of France's largest federation for small and medium-size companies, in a telephone interview in Paris. "We have too many taxes, too many labor restrictions and France is over-regulated."
Finance Minister Nicolas Sarkozy has called for changes to the law and plans steps to narrow a budget deficit that the government predicts will exceed the EU's limit of 3 percent of gross domestic product for a third year in 2004, after reaching a seven-year high of 4.1 percent of GDP last year. He may leave his post to run Chirac's party in November.
"Sarkozy's departure would slow down reforms, because he's tenacious, popular, and has strongly spoken in favor of freezing spending and trimming the deficit," said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris.
France's corporate tax rate is 35 percent, compared with a median rate of 19 percent among the eight Eastern European countries that joined the EU on May 1.
"The tax pressure on companies and individuals who make money is so heavy that there is no incentive to invest," said Yves Bouget, founder and chairman of HF Company, France's No. 1 maker of automated appliances including interphones and remote control devices for television sets.
"The government needs to reduce taxes on profit," said Bouget, whose company is based south of Paris in Esvres sur Indre and has units in Spain, Italy, Belgium and Poland. "One shouldn't be surprised if the French economy doesn't create value or growth." [emphasis mine--ChuckB]
Wait! It sounds like you need to lengthen the work-week, reduce taxes on business profits, and relax labor laws. But that means becoming more like the U.S. That's just wrong! That's just so ... un-European.
Sadly, the situation for Germany looks even worse:
Germany, the continent's largest economy, abounds with reasons why Western Europe is losing the competition for investment and jobs to the U.S., China and India -- and the low-tax Eastern European countries that, after entering the European Union in May, are competing right on Germany's doorstep.
German labor costs are six times the Eastern European level, according to a report published on August 24 by the Cologne-based IW research institute. A corporate tax rate of 37 percent is almost twice that of neighboring Slovakia, which now makes more cars per person than any other Eastern country.
For German corporate standard-bearers such as Siemens and DaimlerChrysler, the only expansion is abroad. With German unemployment at 10.6 percent, the most workers can hope for is to keep their jobs. Munich-based Siemens won an extension of the work week at two phone factories to 40 hours from 35 hours at no extra pay after threatening to cut 2,000 jobs there.
Schroeder's law reducing jobless benefits from January 2005, the first cuts in unemployment welfare since World War II, prompted thousands to take part in Monday demonstrations throughout August in east German cities including Leipzig and Berlin. Protesters threw eggs at the chancellor during an Aug. 24 visit to the eastern city of Wittenberge. ...
The cuts in unemployment benefits "are highly overdue," Norbert Quinkert, the head of Motorola Inc.'s German unit, said in an interview. "They will raise the pressure on the jobless to take up work. The government must not let up in those efforts."
"Lobby groups, especially labor unions, still exert too much influence, so that companies' investment plans often get clouded by unnecessary haggling," said Quinkert, whose company employs 3,500 people in Germany. He said he gets frustrated with the slowness of decision-making in Europe: "In the U.S. decisions are simply taken more quickly," he said.
Schroeder said on July 10 that he will focus on putting into practice laws already passed, rather than trying to win support for more cuts in welfare or an over haul of labor restrictions.
"Schroeder's welfare cuts can only mark the beginning of more far-reaching changes," said Kudiss at the BDI. "New laws on other burning issues -- for instance health, pensions and even taxes are just as important."
As the government puts off further action, there is little to breathe life into domestic demand, which contracted in the second quarter as exports drove economic growth. German business confidence dropped for a third month in four in August as record oil prices threaten to further hurt consumer spending.
"The economic outlook for Germany, then, is pretty grim," said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York. "German companies producing goods and services for the domestic market will remain in trouble." [emphasis mine--ChuckB]
It sounds like more of the same: cutting taxes, cutting unemployment benefits and other welfare, decreasing the influence of labor unions, increasing the work week. They should never have let those East European countries into the EU. Curse those New Europe parvenus! They are ruining everything.
Both Hutton and the Bloomberg article have some information on the electoral and political challenges facing Chirac and Schröder. The picture isn't pretty. Schröder seems to realize the urgent need for changes, but he has become quite unpopular as he has pursued them. The situation must be dire indeed if a politician as pragmatic and calculating as Schröder feels compelled to push through deeply unpopular reforms. Chirac, on the other hand, doesn't seem terribly interested in reforms--apres moi, le deluge? My suspicion is that he is taking a note from Arafat: hunkered down and concerned for little else besides his own political survival. It will be interesting to see how he fares against Sarkozy's likely challenge.
Concerning the future, Hutton warns:
It could all turn ugly; an unratified European Constitution, stagnating economies, new dark nationalist politics and a fragmenting European Union.
Just a reminder: he isn't writing about the US there--that's a European report card he's giving. For a quick glance at some of the "new dark nationalistic politics", see my next journal entry, hopefully later today.