Commentary: ...But A Harsh Diagnosis For Europe
During his 13-year stint as the head of the International Monetary Fund, Michel Camdessus perfected the art of dressing down the world's budget-busters and fiscal profligates. Now it is the turn of Camdessus' native land, France, to come in for an earful of criticism. Charged by the French government five months ago to look into why France can't boost its economic growth rate, Camdessus delivered a withering critique of Gallic business as usual when he unveiled his report on Oct. 19. Without radical changes to the status quo -- from the short workweeks to chronic underfunding of higher education -- the decline of France "will be irreversible in 10 years," says Camdessus.
Cynics may write off Camdessus' blast as another useless exercise in French introspection. True, the Camdessus commission is only one more in a series of blue-ribbon panels arguing that France needs to reform its ways. Yet the fact that this latest punch has been delivered by one of the country's most distinguished fonctionnaires -- Camdessus is also a former governor of the Bank of France -- gives it a particular sting.
All across Europe, there is an unprecedented wave of similar self-criticism. In Germany, Finance Minister Hans Eichel last month became the first leading politician to acknowledge that the European Union's stated goal of surpassing U.S. economic growth rates by 2010 cannot be met. In Britain, the high-level Pensions Commission in mid-October starkly warned that 12 million soon-to-be-retirees would be facing sharply reduced incomes because of shortfalls in pensions funding. And in a long-awaited competitiveness report ordered up by the European Commission, former Dutch Prime Minister Wim Kok argues that without massive cuts in red tape and an all-out effort to spur innovation, Europe's economic standing is bound to plummet. "What is at risk," reads a leaked copy of the report, "is nothing less than the sustainability of the society Europe has built and to that extent, the viability of its civilization."
This outbreak of truth-telling should be cheered on. Over the past 20 years most of Europe has been in deep denial. Despite so many of the Continent's key indicators going in the wrong direction -- growth trailing far behind the U.S. and most of Asia, productivity slowing to a halt, and an unprecedented aging of the population -- politicians kept promising that the cherished European social model, in all its variations, could be preserved untouched. And even expanded: France began phasing in the 35-hour workweek in 1997 in the face of evidence suggesting the French needed to work more, not less.
Just as the first step to recovery for an alcoholic is honesty about his illness, Europe's confrontation with what ails it could well be the beginning of its own 12-step program to economic health. For one thing, making the public more aware of the challenges ahead can prepare it to accept tough remedies. "The realization is finally sinking in that there is a productivity problem in Europe," says Daniel Gros, director of Brussels think tank Center for European Policy Studies. "And this productivity problem is not so much vis-à-vis the U.S. but vis-à-vis our own past. If you just take our own data, our growth level is going down, and that is worrying."
European politicians are starting to take some action. French Finance Minister Nicolas Sarkozy, after pushing through a partial dismantling of the 35-hour workweek, is greeting Camdessus' report with open arms. Italy, under Prime Minister Silvio Berlusconi, has ramped up a privatization drive that has sold off $106 billion in assets since 1994 -- $20 billion last year alone. German Chancellor Gerhard Schröder's Agenda 2010 takes direct aim at some of the pillars of the welfare state, such as its generous unemployment insurance scheme. Perhaps the clearest sign of the new sobriety is in Brussels itself, where free-market adherent José Manuel Barroso takes over as European Commission President on Nov. 1. Things may not move fast enough in Europe, but they are moving.
By John Rossant