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Economy, growth: what if we told the truth?

The strike by some of the public services in Germany and the repeated demonstrations in France hide the reality of a Europe that is indulging in the contentment of economic growth that unfortunately is no longer a reality. Our economic situation is much more serious than we would like to admit. Our economic growth rates slacked over fifteen years ago.

Initially however a market economy is based on growth.

It is the driving force of free economies. It determines progress, the rise in living standards as well as the creation and renewal of employment. It is the vital condition for success in a world economy since it attracts capital and establishes wealth in the most dynamic areas.

But after having enjoyed 30 years of unification and integration Europe appears to have missed the boat in terms of globalisation. 

In 2005 the EU's growth rate was seven times less than that of China, five times less than that of India and three times less than that of the USA.

Although forecasts appear to be better for 2006 these are still four times less than China, three times less than India and twice as little as the USA.

Of course these figures hide quite contrasted situations within Europe itself and we should however be pleased with the 10% growth rate in Latvia, 5% in Ireland and 3.4% in Spain.

It remains however that growth seems to have deserted Europe and that the results of this are the regression of our market shares, the diminution of our influence in the world and the stagnation of our living standards. At the end of the 1980's a family could hope to double its living standards within one generation. Now it takes three. Our living standards have stopped improving. If we continue like this it will regress.

Basically we know the reasons for this situation:

A catastrophic demographic situation; of the 456 million Europeans today at this rate there will only be 396 million left in 2050. In 45 years Europe will have lost 50 million and 100 million productive heads and arms respectively.

The regression of work and of course working time; according to Edward Prescott, Nobel Prize winner for Economy in 2004 "altogether in his working life a Frenchman works twice as little as an American." But there has also been a decline in the value of work which is the basis, along with capital, of production. It is useless rejoicing over our productivity at work. If we work less and less the final product will still be inadequate.

Economies that are built on national bases and aim for distant export destinations instead of conquering the immediate neighbourhood, which in Europe means the internal market; in 2005 Germany beat its trading surplus record (150 billion €) but had to be content with a growth rate of 1%.

A common European economic policy does not exist. With regard to their application the Lisbon objectives depend on the Member States. Everyone is turning to the European Central Bank but this is not a monetary issue it is economic. The European Commission is called upon but governments have refused to provide it with a budget worthy of the name. The budget of Europe still only represents 1% of European wealth!

Finally there is the attraction of Europe itself; that is the issue of reform. Member States seem unable to adapt themselves rapidly to the world economy and prefer to fall back on rights acquired in the name of social conquests and which are counter to all evidence. The consequences of this are simple: why would a company choose to establish itself where taxes are the highest, salaries most expensive and regulations the most restrictive? France distinguishes itself once more by the barriers it has established; but it is not alone in Europe.

It is therefore urgent to correct this situation.

There are also some acknowledged remedies: work more, boost the economy i.e. and not stumble over protecting existing jobs but look more into how to create future employment. However in France we see that those who do have work believe they must do everything to maintain it to the detriment of those who do not, notably the youngest. Hence they confuse their social 'acquis' with privileges. By making the labour market more fluid, employment conditions more flexible we can give everyone a chance. Reforms of the labour market are therefore essential for the return of growth i.e. an increase in wealth and European living standards.

The difficulties encountered in France and Germany with regard to simple marginal changes to labour law that are moves in the right direction (in Germany it means working 18 minutes more per day, in France encouraging companies to take on young workers), seems to indicate that the countries of Europe are not ready for this necessary change. And yet do we have the choice?

But these efforts must not be restricted to a national level for want of them being in vain and isolated. They must be part of a new European economic policy that Member States must develop.

They must accept massive investment in training, notably in higher education and research; in the technologies that have become vital to growth.

They must accept sharing decisions with regard to economic policy that no longer make any sense on a national level. What sense does it make if everyone makes his own decisions and watches the emerging nations catch up with us as China already has done, and then overtake us because we shall no longer be big enough to confront the new globalised world? We see this with regard to energy; alone we are powerless, united together we cannot be ignored.

Everything must be done to complete the European internal market. In order to benefit from this we must deregulate more, go further into removing borders, with regard to services of course but also by removing the obstacles to the movement of people and merchandise that are still our worst enemies.

Finding the route back to growth implies first and foremost finding the strength to assume the seriousness of the situation publicly and then to put forward exceptional measures to reform the system. Citizens are capable of understanding this; they are even expecting to be addressed like this. The time has come.