


Going for growth, but how?


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Wouldn't it be amazing if the Europeans discovered Capitalism? Hayekian Capitalism, not Corporate or Crony Capitalism.


The notion of a "growth compact" is absurd. If a government can sign a document ensuring that there shall be growth, what government wouldn't already have done so?


To get rid of the eternal problems of the Euro and the countries under stress action is necessary.

First, make it possible for all to hire workers.
Second, reform the tax system so that all income and trade is taxed.
Third, lift the black economy into the main economy so that the true scale of the problem becomes visible.
Forth, reform the banking system.

Now make funds available any odd way to stimulate growth in the EU as a whole, irrespective of membership of the Euro.

To get there, hard and fair action is needed to be taken by the EU leadership. If only a Delors would stand up to take on the job of cleaning up the Augean sty created through years of inaction.


The trouble is human beings - politicians are only as brave as voters allow them to be. And voters believe whatever seems appealing. Bill Clinton reduced spending and raised taxes to the point that the big worry in some circles was figuring out how to run an economy in surplus, but he had campaigned against a third-party candidate who made a plausible case that the world was ending because of American debt - people were willing to listen. And then Bush came in and wanted desperately to avoid the inevitable recession and started spending the annual surplus and cutting taxes, and here we are.

The only long-term hope is that voters have picked up an instinctive dread of deficit spending, over the medium-term, at least. A few years of high unemployment and the pain of paying down debt from stagnant incomes may have finally done it here in America. (But, no promises.) For historical reasons, Germans seem to have learned the lesson long ago. Many Americans have apparently over-learned it and are calling for drastic cuts in government spending just when they will do the most harm - it's the party calling for not disconnecting life-support that is having trouble making its case. Even though the Chinese government can respond more quickly to a slow-down than democracies can, it too has to consider its citizens response to its measures, but at least they don't have to try to sell their policies in bumper-sticker slogans.


Government over-borrowing in good times makes it difficult for them to borrow in bad times when they need it most. Greedy voters and politicians looking to get re-elected make a very toxic combination. I fear that the political system is unable to cope with telling voters that they can not have what they want or were promised by politicians in the recent past. The insanity of ever more borrowing and spending to prop-up a weak economy is simply not recognized but is ultimately going to fail. Meanwhile, those with lots of spare cash,like China and the oil-rich dictatorships, will end-up owning the most valuable pieces of the "developed" (debt-ridden) world. Unbelievable.


Germany, the Netherlands, Finland, Denmark, and Sweden (and non EU countries Norway and Switzerland) have negative real interest rates for their 10 year government bonds. For example, 10 year bond interest for Finland is 1,9% , inflation is 2,9%, so the real interest rate is -1%. (Not sure if Dutch real interest rate is negative, though.)
In theory at least, mere taking government loans pays off by it self. I'd say this is a trillion euros chance to invest.
Let's say the mentioned 7 countries set up some kind of European Investment Union, capital of say 500 billion euros, and start investing in troubled countries of Greece, Spain, Portugal, and Italy (, Ireland, Latvia, Hungary...?).
At the moment practically all low-cost production is located in China, shipped to europe by enormous loads from another side of the world. At the same time, take Spain, unemployment is 25%.
Say fabric-cloth industry is low cost and requires a lot of work force. Sure there's other fields of production, that could compete with Chinese production, provided that labour cost are brought down. Greece, Spain, Portugal, Italy... they need internal devaluation, say all the prices and costs down 30-40%. In addition, perhaps say Spain could strike a deal: Unemployed people hired by EIU factories and companies could keep 50% of their unemployment compensation money say first 5 years, and 25% following 5 years. Add appropriate shield taxes imposed to Chinese imports, and you'd get production move to europe, where consumers are. Would be nice if say Hennes & Mauritz would be european cloths, actually made in europe.
So, say Germany sells 30 year bonds for 250 billion euros, the Netherlands, Sweden and Switzerland each 50 billion, Finland, Denmark and Norway 33 billion each, and you get capital of 500 billion, which actually makes money by itself.
Sure that would mean tough negotiations, say with labour unions. And, perhaps troubled countries rather stay unemployed.


I don't think the Germans are wealthier as the Greeks ,French,Italians etc....
it's the German Taxman who is more efficient and leaves the Germans poor but gives the Politicians a lot of Money to spend

and therefore Germany has too much power in Europe,that's the scandal.

Germany needs splitting up in 3 Countries to have Equals on the Table in Brussels making Laws for all Europeans not only for

German Politicians!!!!


The cartoon which opens the article is great! But it could be improved by showing the lumberjack getting ready to eat the seedling. Greece and France have cut-down their forests and now want to consume the Black Forest and the seedling too!

The French and Greeks (and perhaps others) are like spoiled children who have an overly developed sense of entitlement. Meanwhile, the Germans (and some others) go to work every day and build economic wealth. Good for them! The Greeks and French want to consume Germany wealth rather than change.

I am surprised that there is now talk of "growth" in the EU. Shouldn't this have been a key part of their economic plans all along? Why give anyone credit for proposing this now? Politicians who do not actively promote economic growth should be replaced ASAP. Politicians who talk growth but not act on it should be replaced pronto! Politicians who promise more "free" benefits should be denounced as "enemies of the future." Smarter voters are, alas, harder to grow than trees.


The situation in Europe is much better as it looks like.
France is bringing new big energy for the European cause and a strong new drive for the rest of Europe.
Mr. Hollande is an excellent choice for France and for Europe.
And in Greece things go almost perfect.
So Europe and The EU are in the best condition.
It could not be better as it is the moment.
There is no reason to worry:)

Tomas Marny

Well, I must repeat what I said before: Current world is globalized and the companies do not care about nationality. As long as EU is the most expansive place to run business but, at the same time, the most easily accessible place to sell your products / services, then it is obvious that EU will continue in economic decline as businesses will move away but sell here. Thus the only real solution for growth is to adjust the condition to make them more balanced. It's a very good topic for the upcoming growth summit to discuss.

Also, if Holland wants to revolt against financial markets, he must first solve how pensions will be handled. The issue is that EU is aging and technology-advancing and thus in several decades there will be great number of elderly people who will not be capable of taking full care about themselves and a lot of unemployed people as they will not be needed in economy (replaced by automatization). Now, the general consensus is that if people save all their lives money and postpone spending to the elderly age, their living standards can be "secured". For this "postponing", you need financial markets because the money to have sense must "work" and be permanent part of economy. Otherwise the "postponed" money is not needed and will not be accepted (inflation at best). In fact, if politicians are persuaded that the money are not needed - in particular that the structure of economy will allow to have majority of people economically inactive but still secure them reasonable living means (for example that the science and technology will be so efficient and advanced that human labour will not be much needed) then, obviously, we can give up all the games about pensions and savings and abolish financial markets.

But I think it will not happen and financial markets will still play central role regardless what politicians say. That's why I find the role of elections much more marginal than in the past because the politicians are limited in their actions by the markets. With the recent panic on the markets, it is obvious that they demand Greece to adopt her own currency again, leaving her in chaos, which should then serve as a deterrent example for other EU countries what will happen if they are not obedient to markets' wishes. Although the latest news is that Greece will get the latest payment from EFSF, I guess that the fiscal hawks will support sacrificing Greece to give lecture to Hollande. So this summer can be pretty adventurous indeed...


Listen up Economist, and banker crooks: we do NOT want burden sharing (read: Germany and Netherlands to pay for other countries spending) and also we do NOT want to save the wealth-destroying Euro. We want the Euro dead and we want a referendum.

And we certainly do not want more inflation. The criminal ECB (the baddest of bad banks in history) has caused enough misery already.

Stop shilling for the bankster criminals, Economist.

la.výritý in reply to mvr36


Cutters in reply to la.výritý

You forget the TE believes in the 'ever closer union' mantra, for the continent anyway (it would lose all credibility in the UK for suggesting the UK be part in black and white).

Have you never done any research into the publication?


The Plan

1. Let the markets Fall

2. Do not Bailout Failing enterprise or Governments.


3. Purge the Debt

4. Let Greece and Southern Europe Establish their own Internal Currencies with Cross Border exchange via Euro

Greek plan


There is no time to waste

la.výritý in reply to Cutters

The talk is always easier than the walk, Cutters!



Cutters in reply to la.výritý

The facts are that the British Conservatives would have left the markets to it. No doubt the vultures would have pick clean what they wanted, while others lost their shirts.

That is how the markets work, and the state should keep out of it.

MySetDancer in reply to la.výritý

The U.S. bank bailout was slow to get started but has become a resounding success by any standard. It saved the economy, as without a functioning banking system the economy disappears. Really, it does. This was not a liberal vs. conservative issue except in the media. Both parties agreed to this.

But the U.S. has flexibility that any one EU country does not have, and acting quickly and firmly is not in the tradition of the EU. So the sickness festers and grows. The U.S. still has to figure-out how to resolve the final chapter and it will in its own way, which will probably be an even greater permanent national debt. At least my local bank is solvent, with strong reserves and insurred deposits. The weakest banks have been closed, and the remaining banks are in pretty good condition, and many are making profits again.

la.výritý in reply to MySetDancer

My comment was referring to Cutters, "The British Conservatives (much despised by continentals) were against the bailing out of banks, which was carried out by a socialist government."

I am convinced that Northern Rock would have received liquidity support also from a Conservative government in September 2007.


Change the cartoon as it seemingly points to a much more ominous concern than human infighting over idionomics.


A number of interesting things being said here, but perhaps we should also look at the role of income. Income inequality has been growing across Europe for the last 20 years. Generally, people at the lower end of the income scale spend marginal income in the real economy, while people at the higher end invest it, expecting a return. By now, there is so much liquidity sloshing about, and comparatively few opportunities to gain a decent return in the real economy, that we've seen debt bubbles pop up everywhere, be they public or private. In other words: growth (and I agree that it shouldn't be a goal at all costs, but just arguendo) comes when more people are able to spend more money. How do we get it to them? Next time, why noy give everyone £1000 instead of quantitative easing or saving banks that in a real capitalist world should have been allowed to collapse?

At the same time, we should get more serious about debt. In housing, for example, it may not be up to the government to determine how much a home should cost, but it should be their task to keep the risk of mortgage debt within acceptable limits (ie. maximum mortgate allowances based on annual income).


I'm still baffled as to how the euro is the problem, as such. If Greece were still on the drachma, it could fire up the printing presses and devalue. Now it's got lots of inflation (thus reducing people's purchasing power), and it's less able to import stuff.

The only difference I can see between that universe and this one is that, in that universe, people can buy less with the nominally-fixed-but-worth-less drachma-based assets and income they have, and in this universe, they can buy less with the nominally-less euro-based assets they have.

Besides the labels, is there any difference?

mwnl in reply to KalTorak

Exports would be less expensive to foreign buyers and foreign (euro) investment would buy more labor and locally produced inputs. (Why does the US want China to allow the RMB to rise?) Compare Iceland to Iceland.)

Todd T



sikko6 in reply to Todd T

"kill the socialism,"
You are pathetic! If you kill socialism without killing globalisation, the consequence will be REVOLUTION. The current globalised capitalism is designed to destroy jobs and force people to live on social security. That's why you think that socialism is the problem. If they can keep enough local jobs, there isn't much need for social security. No need for socialism. Ironically, globalisation demands socialism. Without socialism, revolution will destroy capitalism and globalisation! Man! We are in Catch 22!

wethink in reply to sikko6

Do You thinking Bailing Out the Banks is a Capitalist Ideology. ?

The Banks are no different to the Socialists, they will be back for more Government Hands Outs just like Social Scroungers

Government Lobbying in America for Government Hand-Outs to Big Business is no Different to Social Scroungers.

You American Socialists who claim to be Capitalist. That includes you Mr Buffett as you received large Public Monetary Support for the Bailouts.

The sooner we get back to a system that is fair for all and that means letting Too Big To Fail Banks go we will not have a steady path to recovery



Charlemagne, you ask:
"Going for growth, but how?"
Answer is simple:
Dump the euro and break the EU.
All countries will grow, economically speaking.







sikko6 in reply to Anduril

You talk too much nonsense.
If you are not capable of making highly valued added products, you have to make something very cheap to export. Otherwise you get big trouble like Greece. If you use mighty German currency euro, you have no chance to compete. Euro is designed for German manufacturers at the sacrifice of PIIGS.

Anduril in reply to sikko6

First, If you would not be so busy playing the sikko you would notice that highly valued products these days depend largely on imports of raw materials and even parts.
A stable currency is in many other ways beneficial to do business so the return to inflating drachma or pesos would not be really sufficient to restructure the economies that are too big to rely only on tourism.

Cutters in reply to sikko6

The Irish are better at attracting businesses like Google than Germany is, as well as having far better agriculture and land space to use. Though leaving the € and switching to US$ would be a very wise economic tract to take.

mvr36 in reply to Anduril

You can only be competitive if someone else is uncompetitive. Competitiveness is a relative thing. It is impossible for everyone to be super competitive at the same time.

And the only way Club Med will be 'competitive' is to seriously reduce the paychecks of ordinary workers. Good luck with that.

pietro dangeli




I believe in the Europe but we need better politicians.


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