Growth is the watchword in Europe these days, and it seems everyone has an idea on how to accomplish it.
Spain’s latest idea is one my Fisher Investments colleagues and I heartily applaud:
Fear not, these closures shouldn’t much impact Spanish travel—some of the airports in question have yet to see a single flight, despite being fully staffed and operational for two years. Others serve less than one-fifth the amount of passengers they’d need to book a profit—demand simply doesn’t support their continued existence. Shuttering them likely frees up resources and capital—and perhaps even the land they’re on—for better, more productive uses.
Another interesting, sensible plan emerged from Germany on Friday:
Since the peripheral eurozone’s troubles surfaced, Germany has argued public-sector cuts and market liberalization are the best ways to make peripheral economies more competitive—and more apt to grow—over time. But they’ve had trouble convincing some nations, like France, which think public investment and infrastructure spending would better foster growth. Now, Germany’s taking a different tack: Establishing “Special Economic Zones” to attract foreign investment with lower taxes and looser regulations, eventually showing naysayers just how beneficial these changes could be. It’ll likely take time to fully see the impact, but if successful and it sparks similar changes region-wide, Europe likely benefits in the long run.
Less pragmatic is the strategy of the leader of Greece’s Coalition of the Radical Left (aka Syriza), Alexis Tsipras:
Specifically, he said, “If we had had a different bailout program from the start that wasn’t based on strict austerity but on growth and job creation, the Greeks could get back on their feet and pay back the debt. If you are giving a patient a drug that’s making him worse the solution isn’t to increase the dosage but to stop giving the drug.” His alternate prescription includes rehiring over 100,000 public sector workers, rolling back public wage and pension cuts, nationalizing Greece’s banks (and taxing them a lot more), taxing the wealthy and boosting public infrastructure spending.
Perhaps these would ease some of the burden Greeks have borne under two-plus years of austerity, but in terms of solving Greece’s competitiveness problem, Tsipras’s program seems a giant step backward. To grow more sustainably over time, Greece needs a healthy, productive private sector. Many of the reforms enacted already lay the foundation for that by cutting the bloated public sector and removing some red tape in business and labor markets. Fattening the state back up and taxing the more productive Greeks—effectively lowering their incentive to contribute to the economy—likely only makes Greece worse off over time.
Finally, no EU update would be complete without the latest from France’s new president, François Hollande:
To Hollande’s credit, he didn’t tout this as a pro-growth measure—most likely, it’s an attempt to curry favor ahead of next month’s National Assembly elections, where his Socialist Party is struggling to gain a majority. Given the increased retirement age’s widespread unpopularity, lowering it could work in Hollande’s political favor, for now. But it likely won’t help France’s economy over time—it lowers the amount of time workers contribute, effectively reducing their total output, and increases public and private pension burdens. Granted, the change is incremental and the impact likely marginal, but it does perhaps make France a touch less competitive.
As EU leaders approach their June summit on common growth policy, expect to see more proposals—some sensible, some not—and, as ever, good old fashioned politicking.