Germany über alles

Who is winning in the European economic stakes - France or Germany? James Kanter reports in today's International Herald Tribune that Signs point to a lasting rebound in Germany:

In the latest upbeat sign from Germany, the government reported Wednesday that unemployment dropped significantly last month, while consumer confidence soared - factors that economists said lent credence to hopes for a long-term rebound. France also had something to celebrate in May, as its jobless rate declined to the lowest level in three and a half years.

But behind the rosy statistics were strikingly different pictures of the actual health of the two largest economies in the euro zone. Buoyed by improving economic confidence and demand for its exports, Germany is looking like the best hope for sustained growth in Europe, at a time when the outlook in France remains decidedly mixed.

Much of the improvement in the jobless picture in France was attributed to publicly funded job creation programs. In Germany, the Labor Office said some of the improvement had been due to publicly funded jobs as well, but it also said private-sector demand was rising "and the reduction in employment levels has slowed further."

Another worrying sign for France was a surprise drop in consumer confidence last month - the third in a row, according to the national statistics office, Insee. Analysts attributed the slide to unease over recent street violence, labor protests and a political scandal.

Julian Callow, the chief economist for Europe at Barclays Capital, cautioned against painting too dark a picture in France just yet. But he also noted that Germany had gone a long way in enacting changes to enable businesses to lower labor costs and attract investment in recent months, and to give unemployed people incentives to seek out jobs.

By contrast, labor market reforms had been comparatively timid in France, as shown by the failure of the center-right government of Prime Minister Dominique de Villepin to pass a new labor contract this year. "Germany has swallowed much tougher medicine, offering it somewhat better hope for the future," Callow said.

In a separate index released in Brussels, the European Commission said its broad-based economic sentiment indicator strengthened for the sixth consecutive month in May. But results were mixed at the country level. For example, while consumers in Germany reported an increase in confidence of three points, the level in France fell by three points.

The robustness in Germany is helping to accelerate economic growth across the euro region, which may reach 2.2 percent this year, up from 1.4 percent in 2005, according to figures from the Organization for Economic Cooperation and Development.

"Two cheers for the German economy," said Holger Schmieding, an economist at Bank of America. "It would now take a greater external shock than before, be it a drop in equity markets, a rise in the euro or a slowdown in global growth, to derail the German and euro zone recovery."

...In Germany, joblessness fell to 11 percent in May, the lowest level since December 2004, from 11.3 percent in April. The figures represented a drop of 93,000, to 4.6 million. Economists had expected a more modest decline. Another fillip for the German economy is buoyant consumer confidence, which rose to its highest level since December 2001, according to a survey by the market-research company GfK, based in Nuremberg.

Meanwhile, French joblessness fell to 9.3 percent, its lowest level since November 2002, and many economists now think it more likely that the French government will meet a year-end target of 9 percent.

Even so, economists detect little sign of a long-term downward trend in French unemployment. "The French economy is still losing many manufacturing jobs," said Dominique Barbet, an economist at BNP Paribas. "Higher energy prices also are putting a strong pressure onto household confidence, threatening the strongest factor in the French economy, which is consumer spending."

These unemployment figures are national estimates, which are not standardised. When they are, Germany's unemployment record is better than France, rather than worse, as Kanter notes:

According to Eurostat, which uses methodologies that keep rates lower than some national figures to compare countries, the average jobless rate in the euro zone was 8.1 percent in March. In Germany, the figure was 8.7 percent and in France 9.1 percent. In Britain, Eurostat lists the January unemployment rate at 5 percent. In the United States, Eurostat lists the figure for March at 4.7 percent.

The Eurostat press notice with those comparative figures can be found here (PDF).

Finally, why not three cheers for Germany?

Schmieding of Bank of America said he was reserving "three cheers" for the German economy until Chancellor Angela Merkel implements further, potentially more painful, economic reforms. "Merkel's real test," said Schmieding, "will be whether she can get her grand coalition to lay the basis for a lasting recovery even when the need to do so becomes temporarily obscured by a cyclical upswing."

Comments

[David Wiczer]

Though qualitatively Germany's labor market reforms seem much more successful than France's, I wonder how much of the quantitative success of Germany can be chalked up to their greater reliance on exports. They are clearly in a cyclical upswing, much of which is driven by surging global demand for German industrial output. The [old] Economist pointed out in Germany's export champions: The problem with solid engineering just how much more export oriented is German industry than any one else. I can't help wondering how much of the quantitative performance reflects this economic bias, that makes their up cycle stronger than more inward-looking France.

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The U.S. is not supposed to be a “warmonger.” We are supposed to be a self-sufficient, self-governing country properly attending to our own affairs.

[Lafayette]

NE: "In Britain, Eurostat lists the January unemployment rate at 5 percent. In the United States, Eurostat lists the figure for March at 4.7 percent."

Big deal. This is noise-level variability.

The BLS statistics stateside, for international figures, are "standardized" in order to compare with American numbers.

Besides, as I have said in the past, if economists insist on reporting national statistics in Europe, then they should compare them with state statistics stateside - which is silly.

It's time we compared EU and US statistics, since the two are demographically more similar than any one EU-nation and the US.

[Lafayette]

NE: "Analysts attributed the slide to unease over recent street violence, labor protests and a political scandal."

France is in a pre-electoral blue funk.

What is coming up is a monumental battle of the left and right for control of the center. La Belle Segolene merits being the left's candidate ... the others are intellectual dwarfs comparably. More so, she is a woman and it is about time that the marble ceiling that prevents ascension into the nirvana of French Presidential politics be opened to women. The side-effects can be tremendous in this male chauvinist country.

But, she shouldn't win. She is a political lightweight and her husband, head of the Socialist Party, will end up running France with her as surrogate President. Segolene has little or no credibility in the Socialist Party, which - after all - is the opposition party in the French parliament.

Sarkozy is an ambitious lawyer who suffers fools badly. And, of course, by definition, everyone who disagrees with him is a fool. He was somehow very hurt by Chirac, some like to think it’s personal ... he was dating Chirac's daughter. It is a complicated story with too much innuendo to be written about here.

The point is that Sarkozy is one of those French politicians who seemingly want to assemble a coalition of the right in order to reign. The problem with this is that it is a nice idea, but in words only. French politicians are control freaks, and such animals rarely negotiate a political position. They take a position then live or die with it. Unfortunately, it takes forever for a French politician to simply dry up and blow away. They have half-lives longer than a uranium isotope.

Still, Chirac's immobility has largely made him an irrelevant factor. Should he declare to run (and he hasn't a chance in hell of winning), he will simply assist in Segolene's ascension to the throne by splitting the vote (in France's bizarre two round political marathon) and thereby win the collective approbation of the right. No fine speech fees for him from his friends on the right to cushion his retirement. Not that he needs them ... Madame Chirac is rich enough for them both.

It would be best if Sarkozy won. Nicky could pal with Angela, and both could get the French-German tandem behind some real changes to the EU, that have been needed for decades.

Wishful thinking? Probably. But, the CAP is going to meet its much heralded and much put-off demise soon, and what must be done to reform the EU budget is going to be a fun game amongst all parties concerned.

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[Lafayette]

IHT: Much of the improvement in the jobless picture in France was attributed to publicly funded job creation programs.

"Publicly funded job creation programs"? In May? In France? You gotta be kiddin' me!

No such thing happened in May, except that the Socialist candidate for President promised exactly such a program. The last time it happened, when a Socialist PM was in power, such jobs in City Halls evaporated with the morning dew (or rather two years later).

This sort of "make work" is seen for what is in France. A palliative and not a solution. Besides, as a member of government AND presidential candidate, both in May, I cannot imagine Sarkozy condoning this sort of manipulation.

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