Don’t give in

Date: 07/06/03

Two articles related to Europe's wave of strikes. First, the battles for reform in Germany and France

ODD though it may sound, the rash of strikes in France and the rumble of discontent among Germany's trade unions are both hopeful signs - provided the governments of continental Europe's two biggest economies do not buckle in the face of all the anger on the streets and in the factories. For sure, both governments, as different in ideological background as they are in tactics, have a long and bumpy road still to travel. But both are starting to push their countries in the right direction. And so far, both Germany's chancellor, Gerhard Schröder, and France's prime minister, Jean-Pierre Raffarin, deserve plaudits, as well as prods to do more.

In France it would certainly be worth a few weeks of chaos if the outcome were to be victory in the battle over pension reform, without too many concessions; and Mr Raffarin's record is more hopeful than the hitherto pusillanimous Mr Schröder's. But if the German chancellor can force through his labour-market and welfare reforms without his habitual backsliding, he has at least a chance of starting to recharge Germany's feeble economic batteries. That would be an even greater boost for Europe's economy as a whole, for Germany is both the continent's economic giant and, over the past few years, its worst performer.

The current state of affairs could hardly be gloomier. Germany's economy grew last year by a paltry 0.2% and may not, at present, be growing at all; France's rate only just surpassed 1% last year and at last count was virtually flat. Unemployment in the two countries is rising, at more than 9% in both France and Germany. The plain truth, which even the most ardent of Europe's welfare-state enthusiasts can no longer deny, is that Europe's economies have been trailing woefully behind America's. The reasons: a sclerotic labour market, forests of red tape and overregulation, vast welfare and non-wage labour costs (especially in Germany), restrictive hiring-and-firing practices, and a failure (now starting to be addressed in France and Germany) to defuse a pensions time-bomb caused by greying populations and too-early retirement on extravagant terms. Add the high value of a euro that is inhibiting exports, the suffocating rules of the euro zone's “stability and growth pact” and the slowness of the European Central Bank to lower interest rates, and you have economies whose stagnation has both systemic and cyclical causes.

A tale of two kitties

Mr Schröder has a lot more to do - and has been taking his time about it. But deft politicking seems to have got most of his party behind a clutch of reforms that would start loosening the labour market and tackling welfare excess, not least by making unemployment benefit harder to get. Characteristically, he has been offering symbolic sops to the left, recently promising, for instance, to “examine” the case for slapping on a wealth tax. But he is making progress. He will, however, need all his famed tactical dexterity over the next few months to keep moving ahead, especially as the opposition has a majority in the Bundesrat, the upper house, which can block about half of legislation, including all financial bills.

France is a bit different. Its economy did well in the late 1990s; between 1998 and 2000 it grew at an average yearly rate of 3.6%. But it suffers from many of the same structural faults as Germany. Loth simply to ram reform (pensions are only the start) down the throats of an unprepared citizenry, Mr Raffarin has proved politically cannier than the last centre-right prime minister, Alain Juppé, who failed lamentably in 1995 when he tried to do so. But French governments of all stripes have long had a habit of caving in to those who make mayhem on the streets. Mr Raffarin has already given ground to striking teachers. He now has to show his mettle.

One big problem for both leaders is the ambivalence of their voters. The average German's head says that change must come, yet his heart is still not fully convinced; he sees his cosy welfare state - and the stability and lack of visible poverty it has brought - as an achievement not to be lightly discarded. In France an even sharper paradox persists: most people know that their public-pensions system is unaffordable; yet more than half of them, if polls are to be believed, sympathise with the strikers who have brought their country to a halt. The same paradox also faces other reform-minded governments across a continent where consensus has been king. But if the leaders of France and Germany can find the courage and skill to face down the opponents of reform, prospects for a Europe-wide recovery would get a huge boost.

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