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Monday, October 10, 2005

Comments

Edward Hugh

"I think Munchau is overly pessimistic"

Yes, I agree. There is the iceberg effect here, What you see, and what causes all the debate, and what you don't see, but which happens anyway.

However, I think we have to wait and see what the next German government actually does, and what Sarkozy does if elected in France in 2007. Otoh I am definitely pessimistic about Italy.

"But if Europe's ageing population is to maintain and improve living standards then reforms must come."

Well, I wouldn't put it like this. I imagine living standards can drop, at least in those countries with the most rapid ageing and biggest dependency ratio impacts. The question is how far and how fast. Without the reforms the situation will be a lot worse than it will with them.

"Germany has thus reached the state where an end to the reform process is probably better for the economy as a whole."

Frankly I don't think he really understands what is actually going on.

Angry Economist

Well, this presupposes that governments have significant control over the trajectories of their economies.

Perhaps substantial recession in certain key areas or sectors, or the continued lack of dynamism in these economies may lead to a crisis or turning point where reform is unavoidable perhaps?

The jobs of governments should be to avoid and head off this kind of damaging event, but in the case of Germany et al they are not. And EURO zone countries are hamstrung by borrowing limites (although this might not be strictly enforced!) and if their public finances get any worse, it will have other knock on effects.

Germany, mind you, represents a particular case due to the reunification tax. That has put whopping amounts on top of already high taxes. This in itself has really b*ggered up (a technical term) consumer spending and has encouraged precautionary activity.

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