Friday, February 17, 2012

Being Like Europe?

The lines of difference between social-democratic Europe and the capitalist America were never as strong as our caricatures made them seem. But watching the direction that Germany is driving Europe, I wonder how soon conservatives will be wishing we were more like Europe. I was a bit surprised to read of an Italian politician saying this about the Euro, in the context of a country's inability to devalue to gain competitiveness.
The common currency prevents politicians from fantasizing that they can devalue—and inflate—their way to prosperity. Instead, as Italy's new prime minister, Mario Monti, put it, growth "will have to come from structural reforms or supply-side measures."
Structural reforms that took place in Germany after the unification with the East have put on a path to long term health and low unemployment. Despite suffering an economic downturn in 2008, like the rest of the world, Germany's unemployment rate stands today at 5.5%. From Der Spiegel:
One of the triggers was the reform that combined unemployment assistance and welfare payments into a new entity known as Unemployment Benefits II. "The incentives to work have increased, especially for the qualified unemployed," says Dennis Snower, president of the Kiel Institute for the World Economy (IFO).
As described in ThinkProgress:

Specifically, the government took a fresh look at people who had not worked in years to determine who could and couldn’t work. The able and healthy were matched with potential employers. If they took a low-paying job, which was often the case, they would still receive a small portion of their benefits for a time. If they refused to work, their benefits were reduced anyway.

“The incentives to take up work were strengthened,” says Felix H├╝fner of the Organization for Economic Co-operation and Development, “and also the sanctions were strengthened.” Sure enough, the reforms have nudged more people back into the labor force — and work tends to beget more work, as people develop skills and have more money to spend.

Also, as part of Germany's "Agenda 2010" program, passed in 2003, strict protection for workers long serving in jobs was also removed.

I am not saying that Germany is now less protective in terms of preventing workers from being fired than the U.S., but the reforms show that increased labor market flexibility and limiting unemployment compensation pays off. That 5.5% unemployment rate is looking good to me.

Picture is of the city of Dortmund, North Rhine-Westphalia.

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