The growing weakness in the eurozone economy is for now centered in Germany and France, but there is no reason for Americans to feel smug.
The growing weakness in the eurozone economy is for now centered in Germany and France. Germany’s problems are mainly focused around its growing “deindustrialization,” a challenge both for Germany and the EU as a whole. Germany accounts for around 25 percent of the EU’s GDP and is the bloc’s industrial and economic powerhouse. Or was. And it has a very tricky election coming up. The chance that the country is heading for economic and political crises that will feed upon each other is now unpleasantly high. And that, incidentally, is good news for Putin, with the principal parties of both radical left and right rather too keen to look to Moscow.
France, meanwhile, following the botched snap election called by Macron earlier this year, has a weak government and an increasingly pressing fiscal burden. Its debt/GDP ratio now stands at around 112 percent, “somewhat” above the 60 percent stipulated in the Maastricht Treaty. (Remember that?) Its 2024 budget deficit is forecast to be around 6 percent, compared with forecasts of around 4.4 percent at the beginning of the year. That’s double the Maastricht limit of 3 percent.
In an attempt to tackle this mess, France’s senate has now passed a law which, reports Reuters, “would make people work an extra seven hours at some point over the course of the year, for which they would not be paid salary but for which their employers would have to make additional social security contributions.”
The law may well not pass in France’s lower house, but it shows the way things are going, and not just there.
Writing in the Daily Telegraph, Matthew Lynn notes that France, where the state already spends around 45 percent of GDP, is merely ahead of the pack:
Here in the UK, the plans of the Labour Government will take state spending up to 44pc of GDP, with taxes to match. That is almost certainly an underestimate given that growth is likely to be non-existent, and an ageing population, an epidemic of worklessness, and a flood of refugees will all combine to drive spending relentlessly higher.
And that’s even before the Government squanders billions on expensive white elephants such as GB Energy and the National Wealth Fund. In the UK, we will probably call it a “work for the NHS” day, with our entire salary donated to the health system. The outcome will be much the same. We will all end up working for the Government.
Hayek would have recognised what was happening. In his classic 1944 book The Road To Serfdom he described how welfare states would evolve over time. They might start with the creation of a safety net, but they would grow relentlessly as more and more entitlements were taken for granted.
It has taken 80 years, but it is hard to think of any word other than serfdom that better summarises being forced to work for the state a day a year, much as mediaeval peasants were forced to work for their lords for a set part of every month.
There is no reason for Americans to feel smug. Elon Musk and Vivek Ramaswamy’s Department of Government Efficiency will have to slaughter a few rabbits in the hat if the U.S. is not to run into similar troubles, but at least they know it.
Someone else who gets the importance of restoring order to the U.S. fiscal position is, I think, Scott Bessent — Trump’s nominee for Treasury secretary — and that, too, is encouraging.
But turning off the road to serfdom won’t be easy.