The Corner

European Roundup: ‘Why They Aren’t Getting Better’ Edition

The economic situation in Europe isn’t getting better. Asked about the “pro-growth” agenda of the president of France, MIT professor Daron Acemoglu explains:

I must be honest. I don’t understand what he means by the growth agenda. Does it mean an end to austerity? If so, why not say so? And if so, how do you ensure fiscal discipline moving forward? Does it mean Germany has to bankroll deficits to other countries? If so, it will never be acceptable to the German voters unless there is real political union, which France and the rest of Europe will not accept. I also think it’s totally disingenuous. Growth agenda and further reductions in the French retirement age? It’s totally irresponsible.

What is clear, however, is that Hollande and his finance minister want to increase government spending in the form of hiring teachers and police officers to increase consumption, while increasing taxes on high-income earners and companies. Here is the”we reject austerity” plan:

Mr. Hollande’s backers are expecting an increase in the minimum wage and more hiring of teachers and policemen.

Investors, meanwhile, are spooked by Mr. Hollande’s plans to raise taxes on the wealthy and corporations to make up for the shortfall, leading David Cameron, the British prime minister, to joke recently that London would “roll out the red carpet” for businesses departing France if Mr. Hollande went ahead.

Mr. Moscovici said the government would unveil a balanced package of taxes and spending cuts, but said: “I reject the idea of austerity in this country.”

“What is austerity?” Mr. Moscovici said. “That’s when you hit the motors of consumption and hurt the middle class. We don’t want to hurt the middle class, we want to maintain consumption.”

#more#Good luck with that. Growth in France has come to a halt and won’t reach the previously projected 0.7 percent. The announcement of higher taxes also won’t help. There are signs that people who have the ability to take off are already settling in other countries. But even if you are a hardcore Keynesian economist, considering the weak economy, the French policy should give you pause, since in the traditional Keynesian model government would hike spending but cut taxes, not increase spending and taxes.

In other Europe-related news, a Greek newspaper, To Vima, recently reported that data by “the Troika of international creditors the European Union, International Monetary Fund and the European Central Bank; and data given by outgoing finance minister George Zannias” shows that in 2010 and 2011, rather than cutting spending as it had promised, the government of Greece hired as many as 70,000 public employees:

The official added that over 12,000 people were hired by local councils even as a cost-cutting initiative merging municipalities was underway.

Mr Zannias’ report to the new government coalition after 17 June elections allegedly reveals that although over 53,000 civil servants retired in 2010.

It also said that the overall number of state staff was almost steady at 692,000 people.

In this case, most of the vacancies were filled immediately, the paper said.

Similarly, although another 40,000 staff left in 2011, the net reduction on the payroll was only 24,000.

By this time, Greece had promised to only hire one civil servant for every five that left.

However over 16,000 people were hired instead of the allowed 8,000, To Vima said.

The report came ahead of an expected EU/IMF audit starting tomorrow.

More here. And don’t expect the European courts to be of any help in bringing some sanity to the Union’s entitlement mentality. According to the New York Times, their highest court just ruled that European “workers who happened to get sick on vacation were legally entitled to take another vacation.”

“The purpose of entitlement to paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure,” the Court of Justice of the European Union, based in Luxembourg, ruled in a case involving department store workers in Spain. “The purpose of entitlement to sick leave is different, since it enables a worker to recover from an illness that has caused him to be unfit for work.”

With much of Europe mired in recession, governments struggling to reduce budget deficits and officials trying to combat high unemployment, the ruling is a reminder of just how hard it is to shake up long-established and legally protected labor practices that make it hard to put more people to work and revive sinking economies.

Read the whole thing here.


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