- the economies of the major countries on the European continent are basket cases: They produce the unemployed by the millions. Even more frightening, European economies are creating a new kind of stratified society, in which a substantial and growing minority is shut out from the labor market permanently through absurdly high minimum-wage requirements and overly strict regulations (like the employment protection laws that can make it almost impossible to fire people).
The syndrome has not blighted all European countries equally—parts of Eastern Europe, and some Western European countries, are healthier than the norm. But in the three countries with the largest economies—France, Germany, and Italy— stagnation, joblessness, and low or no growth are now facts of life. Together, these Big Three countries account for about three fifths of the Euro Zone’s economic output, and they are not healthy—and haven’t been for years.
...there is not much hope that continental Europe will catch up economically any time soon. There are three reasons for this sad judgment: First, the economic woes of large parts of Europe are so serious that no quick fix can cure them. Second, the real reasons for the problems (suffocated domestic markets) have not been understood fully even among reform-minded Europeans, despite a quarter century of never-ending debates. Third, even if reformers managed to agree on a comprehensive platform of economic changes and pushed hard for it, they would meet overwhelming resistance from a majority of Europeans. To put it bluntly: Most French, German, and Italian voters simply refuse to accept the necessity of a Thatcher/ Reagan-style economic revolution. Things will have to get even worse before many Europeans realize the depth of their countries’ stagnation.
Adjusted for differences in price levels, per capita income in the United States now exceeds France by close to 40 percent. Germany and Italy lag even further behind.
If labor productivity in Germany and in the U.S. continues on the same path as from 1996 to 2003, per capita income in Germany will grow by only 44 percent by the time American incomes double in 2026. Put differently, within a generation, Americans will enjoy twice the economic status that Germans do.
When economic performance got bad enough in a number of European countries in the recent past, majorities decided they were ready to change course. A good example is ... Ireland, not too long ago one of the poorest countries in Europe. After decades of struggling under socialist-influenced economic nostrums, it made a sweeping move toward the American model— cutting taxes and regulations, and inviting many U.S. corporations to set up bases under business-friendly conditions. Ireland exploded in prosperity, and today enjoys a per capita income about 20 percent higher than in France or Germany.
On the European continent, the Netherlands has made some sensible policy changes. So has Denmark. The government there has maintained fairly high unemployment benefits, but it has made it easier for employers to fire employees; and gotten tough on people who receive welfare benefits yet don’t actively look for jobs. The result is a labor market that is more Americanized than any other in continental Europe, and an unemployment rate at or below U.S. levels.
So, not all Europeans are terminally resistant to sensible economic reforms. There is no insurmountable reason why France, Germany, and Italy couldn’t move toward new policies as well.
Unfortunately, economic results on the continent may have to get even uglier before a majority of citizens recognizes the foolishness of the path they are now on. For the time being, most Europeans still display the same mindset that Lord Palmerston summed up when he is to have said to Queen Victoria: “Change? Change? Why do we need change? Things are quite bad enough already!”