[TODAY]Punished for what must be

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[TODAY]Punished for what must be

Can Europe change? Change what? If you look at the continent from Portugal to Poland, from Naples, Italy to Narvik, Norway, you see many countries, but essentially only one social model (save for Great Britain). The model is one of high taxation, high regulation, high government spending and a highly rigid labor market. And you see something else: low growth and high unemployment. Government spending is in the 50-percent range of GDP, unemployment is around ten percent.
No problem? For many decades, Europe could afford both private prosperity and public splendor. But during the last decade, stagnation has become the hallmark of one of the richest areas in the world. If you live in East Asia, which is booming once more, you might be prompted to ask: Don’t the Europeans realize they have a problem? Yes, they do. So why aren’t they doing something about it?
Actually, European governments, whether left or right, have not only understood the nature of the crisis, but also launched more or less ambitious reform programs. The problem is that change doesn’t pay. Throughout Europe, governments that pushed market-oriented reforms, that tried to reduce government spending and taxes and that tried to deregulate the labor market have either been kicked out of office or soon will be.
Take Spain. Last March, the “Thatcherite” government of the Conservatives was voted out of office in favor of the Socialists. True, the Spanish opposition to the Iraq war and to their Prime Minister Aznar’s close embrace of the United States did play a role. But so did the longing of the Spanish electorate for a Socialist government that would keep state spending, welfare and social protection high.
Just before the Spanish elections in March, there were regional elections in France. The Conservatives, who dominate the national government under Jacques Chirac, were not just defeated but almost wiped out, losing control of almost all the regional legislatures. And all of this because the Chirac government had launched some very timid reforms, such as making it a bit harder to retire before the legal retirement age.
Germany proves that you don’t have to be a right-wing government to be punished by the forces of the status quo. Germany has been run by a left-of-center government since 1998. After being reelected in 2002, the government in 2003 launched a fairly ambitious reform plan, called “Agenda 2010.” It cut unemployment and health benefits, even made it marginally easier to fire people in what must be the most highly protected labor market in the world.
Chancellor Schroeder has been in hot water ever since. The ratings of his Social Democratic Party have crashed, but the good news is that Mr. Schroeder won’t have to face the electorate until the fall of 2006.
The government of Silvio Berlusconi is the longest-lived in Italian history, but it is currently caught in its worst crisis ever. Two of Mr. Berlusconi’s coalition partners, the Christian Democrats and the ex-Fascists, just forced him to dismiss his economics and finance minister, Giulio Tremonti. Why? Because Tremonti was actually serious about reforming the country, pushing for both tax and spending cuts.
So it does not matter whether you are a government of the right, like the Italian or French one, or a government of the left, like the German one. The electorate’s message everywhere is “We don‘t want to change, but if we must change, please make the other guy pay.”
Electorates are in revolt everywhere, but they are venting their anger against the wrong targets. Europe is in trouble because its lavish welfare state was built in an age before globalization. And the problem is not even China, Korea or Malaysia with hard-working populations and lower wages. Europe’s “China” is right next door in Poland, Hungary or Slovenia, where wages are one-sixth of the German level.
In the old days, labor unions could dictate wages and work rules. Today, business just moves 200 kilometers to the East. Or it doesn’t move, but outsources jobs. Karl Marx would say to the angry electorates, “Don’t blame governments when the true culprits are the means and modes of production that have changed so dramatically.” And he would probably add “Adapt or decline.”
This is the brutal choice Europe faces in the 21st century, one that cannot be voted out of power as may yet happen to the governments of Chirac, Berlusconi and Schroeder. Then it will be the opposition’s turn, whether of the right or the left. And they will have to do just what governments in power today are being punished for.
Can Europe change? It has no other choice.

* The writer is the editor of Die Zeit, a German weekly, and a research fellow at Stanford’s Hoover Institution.


by Josef Joffe
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