Euro Zone Economy Shrinks, Returning France to Recession
nytimes.com/2013/05/16/business/global/german...Posted May 15, 2013, 11:59 AM UTC
5619
nytimes.com
It's not that the Eurozone economy shrinking caused France to return to recession; rather France's (and the rest of Europe's) absurd spend-more-and-tax-even-more austerity policies have caused it to return to recession. What they need to do is to institute more pro-growth measures like spending and tax cuts, similar to what Sweden and Germany have done: http://online.wsj.com/article/SB10001424052702304451104577390482019129156.html
2
Germany's solution fails in aggregate. They've exported their way out of disaster - Germany continues to run strong current account surpluses, bringing more Euros into the nation.
Germany acquiring Euros via exporting means other nations must be losing Euros - they can't all export their way out of this mess. It's a solution unique to those countries with the strongest export sectors.
Know one way that net savings could be introduced in a sustainable way to the EMU as a whole? If the ECB simply injected them. Give every country a per capita (or per GDP) hand-out of Euros to spend on stimulus. This is an approach to growth that does not fail in aggregate.. and today, with a billion man-hours of labour lost to unemployment every 10 days (to say nothing of underemployment) the capacity to absorb the extra spending before putting up prices is huge.
Of course it'd mean politicians admitting the past few years were a mistake, and the design of the EMU flawed.. still, what other options do they have?
11
While it is true that Germany has significantly lower taxes than France, Sweden has ~ the same tax revenue as a % of GDP as France
http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS/countries/FR-DE-SE?display=graph
Sweden also spends more on government than France as a % of GDP:
http://data.worldbank.org/indicator/NE.CON.GOVT.ZS/countries/FR-DE-SE?display=graph
So, there must be more to the story if Sweden is an example of a healthy Euro-zone economy. I would postulate that its because the Sweeds have their own currency (yes, they've pegged their currency, but they could easily un-peg it). Similarly, the Germans have the most control over the Euro and its policies.
6
Sweden has not had a pegged currency since 1992.
Edit:
Yes, there's more to the story in Sweden's case. We're in the middle of a housing bubble. It's no wonder aggregate demand holds up when households are accumulating record debt levels.
5
I confused Sweden and Denmark. My Bad.
2
Housing is indeed pretty wild in Sweden as i hear. Interestingly enough it's not just Sweden, but all the Nordic countries show signs of housing bubbles maybe apart from Iceland, but they already crashed and they crashed hard. Perhaps we later find that there was some kind of common nominator like for example Nordea bank that got the madness started?
Denmark is the first to pop. First sets of the boom 10-year bullet mortgages that are now underwater are ready to be served to the tables any moment now.
Shouldn't seek too much economic wisdom from the Nordic, because there is something rotten in the land of Denmark and it's peers alike.
1
That might be convincing if a bunch of other European countries weren't in the same boat or close to it. Even Germany is just barely growing now.
5
Yes, because the German economy is booming right now: 0.1 percent growth in the last quarter after shrinking 0.7 percent in the quarter before.
And all this while we are exporting our way to oblivion, with a large and growing trade surpluse that has in no way, in no way I tell you, anything to do with the problems Europe is facing right now. Why can't they simply all have huge trade surplusus like we do ...
3
Professor Barro is pretty skeptical of government spending as a pro-growth mechanism.
1
Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5.
That article is from 2009, and that number in particular (multiplier around 1.5) has since been verified by the IMF and others.
1
What crazy spending has Euroope been doing? If anything they have pioneered austerity policies since the recession began.
0
If you look at the actual statistics, then most European countries have not been cutting spending. At best, they've been cutting the rate of growth in spending.
Austerity = hike taxes to pay for even more government spending
Prosperity = cutting spending and taxes
1
they've been cutting the rate of growth in spending.
That's a spending cut. Ever managed an organizational budget?
1
Poor Mr. Hollande, if only you were able to tax Depardieu like you wanted, none of this would have happened!
1
Krugman's going to be kvelling over this news.
0
Who would have thought?
Moody's. The service that falsely rated securities, abetting the 2008 crash. Gosh, I love hearing that they're still around, reporting on stuff, and asking to be taken seriously.
You have obviously never worked in finance.
Actually I have, assholejammer. It is was an ironic observation, that apparently went over your head, despite whatever you do for a living. I know Moody's has been around since the turn of the 20th century, and we'll continue to use it despite how misleading they were, just like the banks that survived. One can't reinvent the wheel. It's funny though how they don't need to even rebrand themselves, since few people outside finance are paying attention.