July 23, 2003

Optimism About Europe

For once, the Economist is relatively optimistic about continental Europe's structural reform efforts:

Economist.com: BY MANY standards, the health-care reforms unveiled by Germany’s government on Monday July 21st, with the vital support of the opposition, are far from revolutionary. The levy on companies for their employees' health care is set to fall from 14.4% to a still-hefty 13% by 2006, and the overall national health bill is not expected to decline: the new plan simply transfers costs by making individuals pay for things like dentures. The health minister, Ulla Schmidt, was forced to drop more dramatic proposals, like allowing health funds to have contracts with individual doctors, rather than collective agreements with doctors' associations. Even so, the reform is radical by German standards, and Ms Schmidt hopes that increased transparency will cut down on fraud and increase efficiency. Moreover, the government’s success in getting even this measure of reform enacted is a sign of a new realism in Germany about the extent of the country's economic malaise. Germany is not alone. In neighbouring France, the centre-right government of Jean-Pierre Raffarin has succeeded in driving through unpopular pension reforms that had brought hundreds of thousands on to the streets in protest. And this week, the government slayed another sacred cow, cutting the high, fixed interest rate on France’s biggest savings scheme, the Livret A...

Posted by DeLong at July 23, 2003 09:38 AM | TrackBack


I disagree with the "for once". The Economist used regularly to hail every small call for reform as a major breakthrough, but I think got disillusioned once the takeover of Mannesmann by Vodafone didn't open the floodgates. Of course, it hasn't really happened, because there's no grassroots call for structural reform in continental Europe, and the European Commission can claim no democratic mandate. Now, once France and Germany have managed to sneak through a few controversial reforms, the Economist is back in the over-optimistic mode.

Posted by: PJ on July 23, 2003 09:58 AM

Economist to all: When you folks are all British all will be well. We are so wonderful, you are ...

Posted by: arthur on July 23, 2003 11:05 AM

"Slayed another sacred cow..." The interest rate on Livret A has been cut before, so it's hardly sacred. Since the money saved is supposed to be spent on social housing or subsidizing small businesses, I'm not quite sure what the Economist is getting all worked up about, except that it seems to have a knee-jerk reaction for anything the French unions are against (for yes, the French unions are agin it).

Posted by: Andrew Boucher on July 23, 2003 11:46 AM

Anything unions are against anywhere anytime the Economist is for. Wait till it comes time to slash employee benefits in America, the Economist will be there to enjoy.

Posted by: jd on July 23, 2003 12:08 PM

The optimism has obvious been catching. Morgan Stanley are also cheering on Germany's efforts at reform.

Morgan Stanley

Jul 23, 2003

Germany: Three Cheers for the Chancellor

Elga Bartsch (London)

Six months ago, I published a report entitled Is Germany doomed? (January 6, 2003), in which I argued that the German economy would be reaching a critical point this year, in terms of both the business cycle and economic policies.  As I feared at the time, the economy slipped back into recession in the first half of this year and is unlikely to do anything but stagnate for the year as a whole.  Nevertheless, I am now ready to give three cheers to the Chancellor on the progress he is making in pushing through his reform agenda (see German Economics: Schroeder's Masterplan, March 16, 2003).


Posted by: Pooh on July 23, 2003 02:07 PM

>>And this week, the government slayed another sacred cow, cutting the high, fixed interest rate on France’s biggest savings scheme, the Livret A...

Livret A is not a fixed rate account. It's a regulated rate, but it's meant to be periodically realigned with market rates of interest. It's also not France's biggest savings scheme.

Posted by: dsquared on July 23, 2003 11:08 PM
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