It was conventional wisdom in the US and UK financial press that Europe was dong a hopelessly bad job of responding to the economic downturn, that it needed to do vastly more in the way of fiscal stimulus, that it was consigning its citizens to continued recession, and the Te Germans in particular were to blame for their conservatism re emergency fiscal measures. German readers begged to differ, pointing out the Germany (and the rest of Europe) has large automatic stabilizers (very generous unemployment insurance, for instance), making discretionary fiscal spending less necessary.
I was traveling along the Danube and Rhine in June, and saw far fewer signs of distress (like vacant retail stores) then I see is TARP-supported Manhattan. I thought this was merely sample bias, the vagaries of being in tourist areas (albeit before tourist season was in full swing) and discounted my impressions.
Turns out my sample may not have been so unrepresentative. The Wall Street Journal reports that Europe appears on the cusp of a bona fide recovery, with France and Germany both showing decent second quarter growth, while the US is trying to pretend that “things are getting worse less quickly” is tantamount to recovery.
Now are any of the Euro bashers about to give the EU authorities some credit? I doubt it.
And this disparity, if it persists, points to a much deeper issue. The US chose to deregulate across a wide range of activities and let the devil take the hindmost. Europe cares more about institutional frameworks and collective outcomes. US commentators regularly describe Europe a sclerotic. But if the EU winds up delivering better growth, what justification do we have for a system that seems best at redistributing income to teh top>
From the Wall Street Journal:
Germany and France have escaped from recession surprisingly quickly, outpacing the U.S. in returning to growth thanks in part to government stimulus efforts and consumer spending.
Germany, Europe’s biggest economy, grew at an annualized pace of 1.3% in the second quarter, while France, the region’s second-biggest economy, expanded at an annualized rate of 1.4%. Both countries recorded contractions for the previous four quarters, and bounced back earlier than other advanced economies including the U.S. and the U.K.
The news that Europe’s economic engine is rebounding suggests the region is joining the recovery under way in China and increasingly elsewhere in Asia, exemplified by India’s announcement Wednesday that industrial production in June rose nearly 8% from a year earlier.
That contrasts with uneven consumer spending in the U.S., where retail sales unexpectedly fell 0.1% in July, as American households are hurting from job losses, a weak housing market and tight credit…
The return to modest growth in Germany and France meant that GDP in the 16-nation euro currency zone fell at an annualized rate of 0.4% in the second quarter — a big improvement on the euro zone’s 9.7% pace of contraction in the first quarter.
Doubts persist about sustaining the recovery in Europe’s economic heartland next year. Stimulus measures, including programs to scrap old cars for more fuel-efficient ones will expire, while European banks continue to pare lending as they try to digest losses from the financial crisis and rebuild capital..