Europe on growth: All together now?

Suddenly, everyone wants to change the tune from ‘austerity’ to ‘growth’


(Markus Schreiber/AP Photo)

Last week, we wondered whether Chancellor Angela Merkel and other German officials were too stubborn to notice that their push for austerity is choking Europe’s economy. There’s a chance they aren’t.

On Wednesday, European Central Bank President Mario Draghi called for a European “growth compact,” acknowledging that fiscal austerity is “starting to reverberate its contractionary effects.” Merkel agreed with Draghi, though she immediately specified what type of growth she would–or rather wouldn’t–like to see:


“In Europe, we are called to overcome the sovereign debt crisis and the consequences of the international financial and economic crisis. On one hand, that can be done with a sustainable fiscal policy… but that is a necessary but not sufficient method of overcoming the crisis because we also need growth. We need growth in the form of sustainable initiatives, not stimulus programmes which would increase debt, but growth in the form of structural reforms.”

As vague as that sounds, it means Germany is willing to talk about the “growth compact,” but it won’t be an easy conversation.

Still, as of this week, everyone else in Europe seems eager to change the tune from “austerity” to “growth.” Socialist French presidential contender François Hollande claims he inspired this European Spring of sorts. By winning the first round of France’s presidential election against incumbent Nicolas Sarkozy, who placed second, he says he “liberated” European leaders into talking openly about the need for growth.

There’s some truth to that. The prospect of Hollande becoming France’s next president has undoubtedly had an effect on the general mood in Europe. For one, the “Merkozy” alliance for austerity will no longer be if Hollande wins the May 6 runoff ballot. But the pro-growth camp was already pretty big and loud, with some of the world’s top economists joining Europeans like Draghi and Italian Prime Minister Mario Monti in warning that belt-tightening alone can’t fix the continent’s fiscal crisis.

And then there are the naked numbers, showing that the strategy European governments have implemented so far isn’t working: Spain, which announced this week it is entering a recession, posted its worst unemployment numbers in 19 years today–at 24.4 per cent. Analysts are forecasting the EU this year will crawl forward by a meagre 0.5 per cent.

If this week doesn’t wake up Germany to the need for some flexibility, one has to wonder what will.


Europe on growth: All together now?

  1. Oh hurrah….at long last the light dawns!

    Austerity just makes things worse, absolutely they need growth!

    • It is better to say they need change.

      • Europe has been through more change in the past ten years than we have in the last fifty….what they need in growth.

  2. “Still, as of this week, everyone else in Europe seems eager to change the tune from “austerity” to “growth.”

    King Canute ~ Let all men know how empty and worthless is the power of kings. For there is none worthy of the name but God, whom heaven, earth and sea obey

    Daily Mail, April 2012:

    The official debt to GDP ratio of the French government is around 86%, which is higher than in Spain and Britain, if not yet at Italian or Greek levels.

    Only that word ‘official’ hardly gives you that warm, fuzzy glow of truth, does it? Because France also has liabilities of hundreds of billions of euros via the EU, not counted by the official stats. Add those in, and you get to a debt/GDP level of more like 145%. Add in the present cost of future pension liabilities, and you’ll be way over the 200% mark.

    • You forgot to toss in the kitchen sink. It would give an even more skewed view of France, which is what you’re after.

      The Daily Mail trashes France every chance it gets, and so do you.

      However, austerity makes things worse. The only answer is growth.

      • European growth will likely be where it’s finally going again?. and that’ll eventually be a good thing for europe, I guess. Needless to say, right now, France is still a “basket-case” compared to Germany.

        • Well, France is rightwing.

  3. When you have all the money you can’t get more money by insisting that those who have no money give up more.

    This should not be a remarkable insight, but apparently it is. Truly remarkable is that some still insist that there must be more blood in the stone.

  4. Last week, I wondered whether Mclean’s arguments with regard to Germany’s position concerning the Euro were to the point. There is a chance they are getting there. As I mentioned already then, Germany has supported a growth-oriented approach already for a long time and contributed actively to the setup of the “Euro-Plus-Pact” in early 2011. No growth – no economic recovery. At the same time, growth and prosperity require a sound fiscal policy, hence the fiscal compact that most of the EU-member states, inside and outside the eurozone, have subscribed to.

    So what are the right measures to contribute to sustainable growth? Common sense is usually a good measure. Would we recommend to an alcoholic to fight his problem with another crate of (German) beer? Or applying for a new credit card, once the old one reaches its spending limit? Hardly so. The same is true in the world of larger economics: Germany has a debt-to-GDP ratio of more than 80%; many EU members suffer from higher debt burdens not least because most EU countries, including Germany, introduced very substantial stimulus packages during the economic downturn 2008/2009. There is hardly any more financial leeway for more of it. The problem has to be attacked at its roots.

    The current, severe problems are mostly rooted in a lack of competitiveness. Since the introduction of the euro ten years ago (resulting in much lower interest rates for a number of countries), the production cost per unit increased by about 40% in these countries, while they increased by less than 10% in the core of the eurozone. As a result, exports became less and less competitive, and the countries concerned now face very substantial trade and account balance deficits.

    Initiatives for growth must not slow down the necessary reforms to restore a sensible fiscal policy. Available financial means, like the EU-Structural Fund, could be better focused on help for small and medium-sized enterprises. Assistance should be given primarily to reduce the many ‘sclerotic’ limitations for economic activities, such as inflexible labour markets, quasi monopolist structures, and oversized bureaucracies. The EU’s internal market is still lacking the flexibility it needs and should be completed as a matter of urgency. Closer to home: the transatlantic free trade agenda should have a high priority to open up markets for increased economic activity. A future Canada-EU Comprehensive Economic and Trade Agreement (CETA) can make an important contribution!

    • Descartes ~ “Le bon sens est la chose du monde la mieux partagée; car chacun pense en être si bien pourvu, que ceux même qui sont les plus difficiles à contenter en toute autre chose n’ont point coutume d’en désirer plus qu’ils en ont.”

      Daily Telegraph ~ Apr 29 2012:

      The French-led counter-attack and rumblings of revolt through every branch of the EU institutions last week have brought this aberrant phase of the eurozone crisis to an abrupt end.

      “It’s not for Germany to decide for the rest of Europe,” said François Hollande, soon to be French leader, unless he trips horribly next week. Strong words even for the hustings. “If I am elected president, there will be a change in Europe’s construction. We’re not just any country: we can change the situation,” he said.

  5. Right now, Germany is the “only” really successful country in Europe, but Germany can’t carry all of Europe.
    What is just now beginning to fail, is that old cold-war-American-made Capitalist version of West Germany that has to finally surrender to social “growth”. A (good/honest) socialist Europe will be the better europe.

  6. Germany has also been in the most unique (governmental) position, and proof, that if you take the “best” of Socilaism/Communism, and the “best” of “Capitalism” you can combine that into the best government for any Country, in the world.

Sign in to comment.