Thursday, July 14, 2005

Hard times predicted for Europe.
OECD calls for eurozone to reform

Economic growth in the eurozone will halve in the next two decades unless it implements reform, the Organisation for Economic Co-operation and Development warned yesterday.... Without reform, "population ageing implies that the euro area's potential output growth is set to decelerate and the income gap with the US to widen considerably", the OECD said in its biennial study of the region.

On current trends, sustainable economic output growth would drop from 2 per cent currently to 0.9 per cent in 2020-2030 ... In comparison, the OECD estimates that the US economy can sustain a growth rate of 3.25 per cent a year....
Sub-1% growth ... that'll sure make it fun for them to pay for the world's most generous unfunded taxpayer-financed retiree welfare benefits.

These numbers imply that the size of the European economy will decline by about one-third relative to the US's over the next 25 years.

But not to worry, the French say they have the answer, and with none of that "reform" unpleasantness...

The French government yesterday identified six industrial clusters it believes will help to reinvigorate its economy and pitch the country to the forefront of innovation in new technologies.

However, in an attempt to forestall regional political opposition to the selection of just six globally competitive clusters, Dominique de Villepin, the prime minister, also identified 61 further "poles of competitiveness" across the country. He also doubled the incentives available to these "poles" from €750m to €1.5bn ($1.8bn, £1bn).

"With the poles of competitiveness we will liberate all the potential of our economy," he said... "They will create new products . . . to boost growth." [FT]

Ah, so in French "to liberate" an economy means for the government to direct it by picking its six biggest industrial winners in advance and doling out the subsidies to them -- and to grease the political skids for that by picking 61 more winners and doling out the subsidies to them too, to make everyone happy at taxpayers' expense.

It reminds one of the The Economist's observation that "apparently the French have no word for laissez-faire". Well, Viva la liberté!