NCPA - National Center for Policy Analysis

THE EUROPEAN DISEASE

February 8, 2006

Growth trends in Europe's three largest economies should put all doubt to rest that eurosclerosis is back, says the Wall Street Journal. Gross domestic product (GDP) per capita in Germany, France and Italy is falling, relative to the United States, to levels below those recorded in the 1970s. And according to a study released yesterday by the Paris-based Organization for Economic Cooperation and Development (OECD), European Union (EU) countries have made scant progress in adopting the policies necessary to boost growth.

Labor markets are an obvious culprit, says the Journal:

  • The rate of employment for people age 50 and older is glaringly low in Europe. Echoing Nobel laureate Edward C. Prescott, the OECD says Europeans don't choose to work less than Americans; they respond to perverse incentives to leave the labor pool at significant cost to taxpayers.
  • Efforts to remove the tax incentives to retire early have gone nowhere in the EU, though at least some countries (Denmark and the Netherlands) have started to overhaul sick and disability benefits.

Moreover, the policy reforms under discussion in France and Germany are politically brave but economically insufficient, says the Journal:

  • German municipalities want to increase the workweek to 40 hours from 38.5, sending public-sector unions into a fury.
  • French Prime Minister Dominique de Villepin got 170,000 off the jobless rolls by loosening hiring and firing guidelines for small companies, among other steps.
  • He now wants to make it easier to employ people age 26 and under, but this "first job" proposal sparked yesterday's nationwide protests.

Europeans don't lack for good advice, as the OECD's exposure of policy shortcomings shows. The problem is finding the political will to change. For Europe to keep its current living standards, much less improve them, this "'70s show" needs to be cancelled, says the Journal.

Source: Editorial, "The European Disease," Wall Street Journal, February 8, 2006; and "Going for Growth 2006: Economic Policy Reforms," Organization for Economic Cooperation and Development, February 7, 2006.

For text (subscription required):

http://online.wsj.com/article/SB113936869263768032.html

For OECD report:

http://www.oecd.org/document/21/0,2340,en_2649_201185_36060373_1_1_1_1,00.html

 

Browse more articles on International Issues