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[No_hite_pls]

Europe, Aided by Safety Nets, Resists U.S. Stimulus Push
By NICHOLAS KULISH (New York Times)

"The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate."

VIENENBURG, Germany � Last month Frank Koppe gathered together all 50 of his employees at Koppe-Apparatebau for coffee, cake and the kind of bad news that has lately become all too familiar. He told them the small company�s business, designing and manufacturing custom equipment for industrial plants, had been sliced nearly in half.

But rather than resorting to layoffs, Mr. Koppe asked half his employees to come in every other week. The government would make up roughly two-thirds of their lost wages out of a fund filled in good times through payroll deductions and company contributions.

The program � known as �Kurzarbeit,� which translates as �short work� � and others like it lie at the heart of a heated debate that has erupted on the eve of next week�s Group of 20 meeting of industrialized and developing nations and the European Union, creating a rift between the Obama administration and European governments. The United States is pressing for a coordinated package of stimulus plans by member countries to encourage economic growth, something that Prime Minister Mirek Topolanek of the Czech Republic, which holds the European Union presidency, has called �a way to hell.�

But virtually all European governments, led by budget-conscious Germany, are resisting the American pitch, saying the focus should be on stricter regulation of financial markets.

The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate.

Europe�s extensive job protections and unemployment benefits are �bad in the upswing, because firms don�t dare to hire people, because then they are glued to them,� said Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Munich. �In the downswing, it�s good if the people are glued to the companies. They keep their jobs. They keep their income. They keep consuming.�

The German Federal Labor Office projects that it will spend some $2.85 billion this year for more than a quarter of a million people who end up on Kurzarbeit. In comparison, the agency doled out around $270 million last year, as the financial crisis first began to bite, and roughly $135 million in both 2006 and 2007.

That is a relatively small amount of money compared with the $787 billion stimulus package passed by Congress, but the Kurzarbeit program�s defenders in the German government say it is carefully calibrated to keep people on the payrolls, where shared burdens mean an efficient deployment of resources.

The big numbers at the top of stimulus bills � promises of future highways, for instance � are not the same as money going into consumers� pockets right now, and from there into cash registers, economists here say.

�While the magnitude of stimulus has been much less in Europe�s case, the stimulus has been getting much better traction in Europe than in the U.S. so far,� said Julian Callow, chief Europe economist at Barclays Capital in London. He cited a German incentive program that gave consumers around $3,400 to trade in old cars for new ones and that had led to 22 percent more auto registrations in February compared with the previous year.

�Europe can still do significantly more and needs to do it, but the needs for the U.S. have been much more pressing,� Mr. Callow said.
Germany already has generous unemployment benefits compared with the United States. And many German companies give workers the flexibility to save overtime hours, carrying over the pay for a rainy day.

In the United States, despite scattered reports of unpaid furloughs and wage cuts, companies still rely heavily on layoffs to control labor costs.
As of July 1, Germany�s roughly 20 million pensioners are receiving an additional 2.4 percent in the former West Germany and 3.4 percent in the former East, the highest increases since 1994 and 1997, respectively.
Germany�s chancellor, Angela Merkel, believes the Americans have underestimated the economic impact of the country�s two stimulus packages, worth a total of about $110 billion. Indeed, in terms of immediate stimulus, according to calculations by the International Monetary Fund last month, Germany has committed to stimulus spending this year equal to 1.5 percent of the country�s gross domestic product, compared with 0.7 percent in France and 2 percent in the United States. According to a report from Bruegel, a research center in Brussels, while Germany churns out 19 percent of the European Union�s economic activity, it accounts for 37 percent of the group�s stimulus spending.

American critics, like Adam S. Posen, the deputy director of the Peterson Institute for International Economics in Washington, say that Germany needs to do more. �As a hugely export dependent economy, they have the most to gain from others� fiscal efforts,� he said, �and the most at risk if the global trade contracts further � worse if they are accused of free-riding on leakage from others� programs.�

Mr. Posen and others argue that while Germany may be doing more stimulus spending than others in Europe, it is counseling other European countries � many of which share the euro as their common currency � not to spend their way out of recession either, but to count on their safety nets to do much of the job.
�They�re the ones who basically browbeat other countries into not spending,� he said, �who give intellectual and political backbone to other countries� conservative leanings not to stimulate.�

[Rusty Shackleford]

Yawn. The govt plans still mis allocate capital leading to lower than potential economic growth. The difference between the US and Europe is that Europe is having an old fashioned recession with relatively few bank failures. Meanwhile the US is having a perfect sh it storm of bank failures, recession and collosal mismanagement by the Obama-ites.

The net result will be Europe will continue it's trajectory of middling economic expansion while the US will take a massive blow to growth in the short to medium term but continue on a much more robust path once things return to normal.

Reports of America's demise have been greatly exagerated (imo), and the underlying principles that have made the US the strongest nation in history will win out.

PS. I'm not American, even if the pro-US tub thumping seems to suggest that.

[Hater Depot]

http://www.prospect.org/csnc/blogs/ezraklein_archive?month=03&year=2009&base_name=how_safety_nets_protect_agains

[Cheonmunka]

Isn't 1 trillion dollars 1000 dollars from 100 million working Americans. That ain't so bad. 1000 dollars ain't much.

[harlowethrombey]

while I personally dig a lot of European Socialism its rather foolish of them to believe (apparently) that they can weather the storm just because they have grander welfare programs.


Basic economic principal tells us that when trade plummets and the inter-connected markets start declining there will be more and more people out of work. Less people to pay taxes for the massive social plans. Fewer new business being created, less tax revenue from them, too.


Added to the fact that 'Wall St.' may exist physically in the U.S. but its crappy wheeling and dealing extened over the whole world, Europe included, their own financial industries are far from blameless. So the 'it's not our problem' approach doesnt really hold water.