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| Europe |
| France and Germany will soon fall out |
| 2003-03-10 |
| Opinion piece from the Telegraph. I know it's OT, Fred, if you want to chop it... Here is a surprising fact: 100 Germans are losing their jobs every hour. Imagine being Chancellor Gerhard Schröder. Like a starlet in a Hollywood disaster movie, he is trapped in a car heading over the cliff. The speedometer just keeps whizzing round as he tries the door and screams for help. He pumps the brake and turns the steering wheel, but to no avail. Last week, the counter hit 4.4 million. Apart from his own bad driving, who or what can Mr Schröder blame? His predecessors, the world downturn and the Americans have all come in for criticism. But he may soon find the perfect culprit: the French. For although France and Germany are having a wonderful flirtation over the Iraqi question, they are actually star-crossed lovers. Their interests are diverging over the economy. Mr Schröder hardly needs reminding of this. Last month, he was humiliatingly defeated in the lower Saxony and Hesse elections, just three months after winning the federal election. His pronouncements about stopping the Americans invading Iraq were simply embarrassing in the face of the question that was more immediate to many - mass unemployment. The world economy is on a precipice, but Germany has already fallen over the edge. Germany's crisis is a once-in-a-generation event, such as Britain suffered in the 1970s, and its consequences are far-reaching. Three of Germany's biggest banks are loss-making, as loans to construction companies handed out in the post-unification boom have gone sour. Clients in the once-fabled engineering sector struggle to make profits. Everywhere is the evidence of excessive regulation, which stops companies restructuring and new enterprises opening up. There are, for instance, only four days a year on which employees can be dismissed. In some towns, anyone who is not a registered agnostic or atheist must still pay church tithes. No wonder that the European Central Bank again cut interest rates last week. By contrast, the French economy is in positively bumptious condition. Although it has slowed, along with the rest of the euro zone, it is outperforming other big economies, such as Italy's. In theory, France should be heading over a cliff, too; it suffers from many of the same problems as Germany, including excessive regulation, an unreliable banking system and high taxation. It also has the 35-hour week, which has rendered industry extremely uncompetitive. But France has natural advantages that it can always rely on to come to the rescue. France is an attractive, verdant country. It is the world's largest tourist destination and also the biggest exporter of food. So the French can do pretty nicely just by sitting on their backsides. French service industries grew throughout the 1990s, creating an extra 1.25 million new jobs. Many of these are in some way related to France being so popular for holidays and second homes. France is suffering from a downturn, but not a crisis. The French are also brilliant at rigging the rules in their favour. France receives more grants than any other member of the European Union from the CAP, which helps to reinforce its advantages at the expense of everyone else. The CAP subsidises those quaint rural farmers and co-operatives who are incredibly inefficient but none the less maintain the countryside that we so enjoy visiting. And if a regulation or a rule comes along that the French don't like, they just ignore it. Nowhere is this more evident than with the euro, for the single currency is the arena for conflict with Germany. The euro suits France. It joined at an attractive rate and the current ECB interest rate is about right for the French economy. But for Germany, the euro is a disaster that has saddled it with the most unsuitable monetary policy since Weimar. Germany should have interest rates of less than one per cent, not the 2.5 per cent forced on it by the ECB. And instead of its manufacturers having to cope with the strengthening euro, it needs a devaluation, possibly by as much as 30 per cent. Only then could its factories have any chance against those hard-working Asians. Then there are the rules underpinning the euro, or the Growth and Stability Pact. This says that a country must not have a large government deficit. Both Germany and France have fallen foul of this and so they are being told by the EC to cut government spending and put up taxes in order to balance their books at just the wrong time in the economic cycle. The Germans - notorious sticklers for rules - have just increased capital gains tax and put up social security contributions. But the French are having none of it. Last Thursday night - at a meeting in Brussels - French finance minister Francis Mer declined to commit himself to anything. President Jacques Chirac said he was following a "determined and responsible foreign policy". To add insult to injury, the president of the ECB, Wim Duisenberg, has been elbowed by the French into stepping down this summer. He must, of course, be succeeded by a Frenchman. But Jean-Claude Trichet, the man chosen by Jacques Chirac for the job, is currently fighting a legal battle over his role in the Credit Lyonnais banking scandal. He is hardly the most obvious person to reassure the Germans about the euro at such a critical time. An almighty euro-tiff could be only months away. |
| Posted by:Bulldog |
| #4 Good article, but past-oriented. Do NOT invest in the French tourist industry, and do NOT go to France in any case, unless you like being insulted by ignoramuses. |
| Posted by: Anonon 2003-03-10 15:09:16 |
| #3 Since Frankenreich's delay allowed Saddam to put more pestilence in place, US soldier and Iraqi deaths are on their heads. |
| Posted by: Anonymous 2003-03-10 11:15:26 |
| #2 My husband read last night that Vivendi posted a $25 billion loss. I wonder if that'll be part of our "reform" of the UN. |
| Posted by: Anonymous 2003-03-10 11:12:18 |
| #1 A whole lot of UNESCO dollars are spent in Paris (reports, catalogues, conferences). I've always wondered what the economic effect of that is. Probably, with UN accounting being the black hole that it is, no legitimate study could ever be done. |
| Posted by: mhw 2003-03-10 07:38:34 |