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Spengler

The Growth Canard in Europe

May 20th, 2012 - 4:42 pm

INFORMAL ECONOMY AS % OF GDP (World Bank)

Everyone cheats the government in southern Europe, and everyone arranges their lives so as not to pay taxes. Wonder why you can’t buy shares in all those wonderful Italian brands you know? Italy has hundreds of excellent companies, but they are all family owned, because few Italian businessmen will trust their books with anyone but a blood relative. Tax evasion? Never heard of it. Good Italian companies stay small and family-controlled rather than go public to allow predatory families to evade the depredations of a predatory state.

Greece is worse. The country lives on tourism, and rents properties for cash or bank wire to Liechtenstein. Greeks simply do not declare their income. Greek government employment is ridiculously overstaffed and overpaid.

With the exception of Germany and a couple of others, the European nations have priced themselves out of the world labor market. Germany’s economy is still growing while the rest of Europe is shrinking. Throwing more subsidies at structurally inefficient and corrupt economies won’t help. The people of southern Europe have to decide that guaranteed jobs might mean no jobs at all, and that excess pay might mean no pay at all. Until the Europeans are willing to accept the risk and mobility that made the American economy so strong (at least until the Obama administration got control of it), they will languish.

Chancellor Angela Merkel of Germany is magnificently right to insist that deficit reduction is a precondition for growth. It’s not just deficit reduction. The southern Europeans want a nanny state, but they don’t want to pay taxes.  They want Germany to pay their taxes for them. Maybe Germany will cover Obama’s $1.4 trillion federal budget deficit, too.  Hey, it doesn’t hurt to ask, does it?

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