Saturday, April 09, 2005

Checking in with Europe's Old Guard

In a recent purge of the old magazine stack, I came across an article on the Euro in The Economist. It really hasn't been that long since the Euro officially replaced national currencies in Germany, France and a number of other EU countries. This group has become known as the Euro-zone.

I remember many North American leftists trumpeting the Euro as a harbinger of Europe beginning to replace North America as the world's economic driver. However, as The Economist pointed out in this article (Jan 5 2002 - p 39):

"It's a glittering new currency, no doubt. But behind the glitter there is no glittering economy"

- and quite correctly so. The Euro's keystone economies - those of Germany and France - were not healthy. German unemployment was approaching 4 million. It's budget defecit was close to the Euro-zone's required 3 percent of GDP limit. Quarterly GDP growth was alternating between negative territory and neglibibly positive.

France's economic picture was not nearly as gruesome - but unemployment was at about 9% and rising again.

Since then, look what's happenned - the French and German economies have been duds. The United States has outperformed each by a wide margin:


2001 2.1%
2002 1.2%
2003 0.2%
2004 2.1%


2001 0.8%
2002 0.2%
2003 -0.1%
2004 1.6%

United States: (Department or Commerce)

2001 0.8%
2002 1.9%
2003 3.0%
2004 4.4%

Bear Stearns' economist David Brown stated the problems succintly:

"The German recovery is dead in the water right now and the French recovery looks like it has hit a brick wall as well." (Nov 12 2004)

France, Germany and the US all have budget deficits in the 4% of GDP range - but the US seems to get economic growth as a result. Despite efforts to deossify their economies, the Euro-zone's non-dynamic duo have at best spun their wheels. Perhaps after decades of convincing their citizens that there is a free lunch, it may take a decade or so for the reality to sink in.

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