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November 9, 2010
 by Steven Hill

SO HOW’S EUROPE DOING? AN UP CLOSE LOOK…One of my goals during this trip has been to assess the impact of the economic crisis in those parts of Europe I am visiting, which by the end will amount to 12 different countries. Is the highly vaunted European social capitalism, which has provided so well for families and workers even as it has cut its carbon emissions to half that of the US, in danger of erosion?

If it were possible to sum up what I have heard and observed, the most telling comment was made by, curiously enough, an American living for many years in Slovakia. I was chatting with him in the Frankfurt airport after both of us got bumped from our flights due to a screw-up by Lufthansa Airlines (which is usually so efficient). While cooling our heels awaiting a rebooking, we fell to talking. I asked him about the impact of the economic crisis in Slovakia, and Europe in general, and after pausing thoughtfully he replied: "The fear of the crisis has turned out to be worse than the crisis itself." Indeed, in France, Germany, Sweden, Italy and most of the other countries I have visited, the economic crisis has nibbled away at the edges of everyday people's lives but it has not bitten into the bone. Not by a long shot. Certainly there is worry, and a degree of pessimism setting in, but the Germans and the French in particular tend to be pessimistic people anyway, in my experience. Unemployment in most places has remained at manageable levels, and people still have their very generous (by American standards) workfare supports for families and individuals to shield them. These supports really are both a material as well as psychological comfort during times like these, as well as they provide ongoing consumer stimulus to the broader macro-economy.

So the overall picture is it mixed one, yet that nuanced snapshot is not what you read or hear day after day from the mainstream media in the US. The New York Times recently published a series of short interviews called "The Austerity Zone: Life in the New Europe" in which viewers get to listen to the plaintive personal stories of woe from a handful of people from Greece, Spain, Britain, Germany and France. The Times also wrote recently that, “Whether in Spain, France or Italy, European nations remain saddled with heavy welfare obligations — ones that inevitably must be curtailed to meet ambitious deficit targets, even as their tax revenue is constrained by low economic growth.” Yet I have seen another story playing out here, one that is more complex and laced with silver linings as well as green shoots of recovery. But it does vary from country to country, just as economic recovery in the US varies from state to state. And the fear of the future continues to hang like a specter over the continent, as the biggest impacts of the deficit cutting measures being enacted by most governments won’t be felt until 2011 sometime. So that creates a degree of uncertainty that is feeding the pessimism.

Here’s a country by country breakdown of the countries I have visited:

Germany. Europe’s leader and economic engine, Germany is one of the few countries where the unemployment rate actually has declined during this economic crisis to an 18 year low of 6.7 percent (in the US, unemployment has nearly doubled during the crisis to 9.6 percent, according to the OECD’s harmonized unemployment rates). Germany’s exports have soared over the past year, providing a sizable trade surplus and leading the way to its still fragile economic recovery. In the last month and a half I have visited Berlin, Munich, Frankfurt and Heidelberg. Munich, Frankfurt and Heidelberg all seem to be doing fairly well, based on my talks with public officials, elected leaders, as well as people in the street, shopkeepers and taxicab drivers. Here and there you see a vacant shop window, yet several shopkeepers told me that things are better this year than last. In Berlin, which has long been poorer than the rest of Germany due to its point position in integrating the formerly communist East Berlin/East Germany, some of the people I talked to complained about cutbacks in city services, a decline in health care quality, and having less disposable income in their pockets. But the amount of homelessness and begging on the streets is still minor compared to any similar-sized U.S. city. Even with their cutbacks, the average Berliner still has a lot more to fall back on than the average American, in terms of the types of supports that people need today in this economically insecure age.

Luxembourg. I had never visited this small, wealthy country before, it’s the size of Rhode Island with as many people as Wyoming or the District of Columbia. It has the world's highest GDP per capita and an unemployment rate of only 5 percent. It benefits greatly from location, as it is surrounded by Germany, France and Belgium, and workers as well as shoppers from these three countries pour into the capital city Luxembourg on a daily basis to take advantage of still-thriving businesses and fine shopping opportunities. It also benefits from many good government jobs, as it is the seat of the European Parliament's secretariat, as well as the European Court of Justice, the European Court of Auditors, the European Investment Bank and several departments of the European Commission. A former walled city, today it is a quintessential European city filled with a German-style industriousness that mostly seems unfazed by the economic crisis that they see as happening somewhere else.

Netherlands. I only visited Amsterdam, but it seemed to be its usual pulsating self. The restaurants, bars, cafes, pot shops, and plazas were teeming with people. No one I spoke with seemed to think the crisis was biting too deeply. One friend who was unemployed was in no rush to find work; he was “weighing his options” and seemed to think that when he was ready, jobs would be available. Unemployment rate: 4.4 percent (less than half that in the US, which is at 9.6 percent unemployment).

Belgium. I was in Brussels for only a few days, which is probably not representative of the rest of the country since it has a huge number of permanent jobs resulting from its status as the seat of the European Union and other international organizations. Belgium's unemployment rate has increased during the economic crisis from about 8 percent to 8.7 perent, and people I spoke with said that the crisis had made people tighten their belts more. But on the whole, rush-hour traffic jams were still hellacious, usually a good sign that tons of people are commuting back and forth to work.

Sweden. Like Germany, Sweden is another country that has pulled through the economic crisis in fairly decent shape. It didn't have a hyperventilating housing market like the US (and Spain, Ireland and Britain), so it has not suffered the same degree of economic ravaging. And Swedes have an excellent support system for families and workers, which results in consumers having more money in their pockets which helps drive the macro-economy. For example, the people giving me my ride to the airport to catch my flight to Oslo happened to be heading out of town on vacation. In addition to receiving paid vacation (i.e. regular full-time salary while on vacation) the government deposits into their banking accounts a vacation bonus to make sure they have enough money to enjoy themselves. Talk about a "vacation nation!" The unemployment rate is about 8.2 percent, which actually is a tad lower than before the start of the economic crisis. But things around the edges are sufficiently anxiety-producing that for the first time in Swedish history a populist, far right party squeaked above the 4 percent threshold necessary to win seats in the national parliament. This of course threw the justice-loving Swedes into a bit of a tizzy, an overreaction to a fairly typical occurrence during economic downturns, i.e. the rise in popularity of populist parties (see my previous comments in this blog on the recent rise of "far right" populist parties in Europe which, in many ways, are to the LEFT of the Democratic Party in the United States).

Norway. What can you say about a country that, in the midst of a global downturn, has a 3.3 percent unemployment rate? If you have a lot of oil reserves, like Norway does, recessions are events that mostly happen somewhere else. Oslo is a jewel of a city, perched on a glistening fjord, and a land of winter sports, sculpture (including the amazing Vigeland sculptures, written about elsewhere in this blog), Henrik Ibsen, Edvard Munch and Norse hardiness. The people I spoke with didn't think the recession had been much of a factor there.

Austria. Its unemployment rate has barely changed during this economic crisis, still at 4.5 percent, less than half the U.S. unemployment rate. Indeed, this Alpine studded jewel seems to have barely noticed the economic recession. There are signs of the downturn here and there, including a sizable increase in popularity of the populist Freedom People's Party during the municipal elections in Vienna to 27 percent of the seats (written about elsewhere in this blog). But construction cranes seem to lord over several parts of the city, including at the site of a massive new central train station funded in part by European Union money. Salzburg, several hours to the west near the German border, remains a quintessential European fairyland, a place that time passes by leaving it in a time warp of prosperity and healthy Austrian living. However looming on the horizon across Austria, especially in Vienna, is the slow but steady rise in the ethnic population, especially Muslim Turks, with all the tensions and challenges that implies.

Hungary. In Budapest, the largest city in Hungary with nearly two million people, the post-crisis situation appears fairly “EU normal.” I don’t see any obvious signs of deep recession, i.e. numerous shops vacant, more homeless people, empty cafes, restaurants and bars. Quite the contrary, these seem quite full and teeming; I was in Budapest a year ago and I don’t detect any obvious differences between last year and this year. But looks can be deceiving, so I chat with a few shopkeepers, people in cafes, my taxi driver, a bartender (most of whom speak decent English), and some Hungarian politicians at the conference I attended. The consensus seems to be that the crisis was worse last year, that this year things are better. But certainly not all better, unemployment has increased since the start of the crisis from 8 percent to about 11 percent. In 2008 it became the first EU country since the UK in 1976 to take a bailout from the International Monetary Fund. But as one of the politicians tells me, “In Hungary, people are philosophical about it. As crises go, compared to what Hungary (a formerly Communist country) has seen in the past, this has not been a big one.”

France. Yes, protesters are in the streets nearly everywhere. I witness a slow, dirge-like labor march in Toulouse, and a protesting parade of roller bladers in Paris (see more on the latter elsewhere in this blog). I also visit the working-class port city on the Mediterranean, Marseille, France's second-largest city with about 1.6 million people; the sun-splashed tourist city of Nice; the rural town of Lautrec outside Toulouse; and the European Parliament home in Strasbourg, near the German border. Despite the image of France exploding with labor strife, in every place I visited things look pretty "EU normal." In the bigger cities there are a few vacant storefronts here and there, and its unemployment rate has increased from 7.8 percent before the economic crisis to about 10 percent today (not that much higher than U.S. unemployment at 9.6 percent). But the protests and strikes to me seem like a healthy response to a fear that this economic crisis will be used by wealthy interests to erode France's social capitalism model. The front lines of that battle right now has been over the recent increase in the retirement age, which in actual fact only brings it more in line with other countries like Germany and the US. But the French wonder, "Why aren't more Americans out of the streets defending their social contract?" I couldn't agree more.

Italy. It's hard to say with Italy, I only get to Rome, one of my favorite cities anywhere, and the Eternal City of the Seven Hills has always had its rougher edges, more panhandlers, more pesky motor bikers spewing exhaust, less tidiness than the Germanic countries. But things don't look any different to me than the last time I was here before the economic crisis, though unemployment certainly has increased, from 6.8 percent to 8.3 percent. One interesting experience seems worth noting: I gave a lecture at a center-right policy institute there called Fondazione Fare Futuro and the audience is a high level one, with some elder statesmen in attendance who have been advancing the cause of the EU within Italy for decades. These old war horses make impassioned statements about the declines they see around them and their fears over the future. But afterward I went out to dinner with five younger Italians, thirty-somethings, who attended my lecture. I asked them about the gloomy statements of the elders of their organization, but to my surprise they just laugh it off. "Oh, those old people, they are always sounding like that. They are gloomy by nature.” They shake their heads and say that they think Italy and the EU, on the whole, are doing just fine. Their optimism is refreshing, the pasta and red wine absolutely delicious, and by my estimation Rome still maintains its position as one of the world's great cities.

The previous year, in August 2009, I had been in Slovenia, Croatia, Slovak Republic and Hungary. A listlessness was evident in the Slovak Republic, no doubt stemming from its 12 percent unemployment (as high as California's). Slovenia's unemployment stood at 6 percent and Ljubljana still retained the vibrancy of a quintessential European capital, but this year its unemployment climbed to over 7 percent. Unfortunately I did not get to three of the so-called PIIGS countries, Spain (20 percent unemployment, the highest in Europe), Ireland (14 percent unemployment), or Portugal (10.5 percent unemployment). Nor did I travel to the UK, where unemployment has climbed from 7 percent to 8 percent and conditions appear to be fragile, as the new Conservative-led government there prepares for drastic cuts in public spending.

But on the whole, I found the parts of Europe where I traveled to be coping reasonably well, considering that we are in the middle of the worst economic downturn since the Great Depression. But next, I am heading to Greece, the epicenter of the PIIGS sovereign debt crisis earthquake, where I will be giving lectures and interviews to the media, and will have a chance to interview Prime Minister George Papandreou -- from the top of the Acropolis!

Steven Hill 5:42 PM Permalink | Trackbacks | Comments (2)

Steven, just to add some numbers to the situation in Berlin:

Of all bigger German countries Berlin (the country Berlin is only slightly bigger than the city of Berlin) has by far the weakest economic power. For decades it has been an economic desaster area. But since 2004 it grew with an average of 1.7 %, while Germany on average grew by only 0.5% p.a.

Economically spoken Berlin has been the fastest growing country of Germany since 2004, but it is still coming from behind.

Still Berlin's dept is extremely high and isn't expected to go away very soon. The cutbacks you mentioned are necessary for the country of Berlin to not go insolvent.

One of the biggest problems is long-termed unemployment in Berlin. While the unemployment rate is very high anyway (14%), Berlin has a way above average percentage of people lacking graduation from school or professional education. Thus, though Berlin added 140.000 jobs between 2005 and now, a lot of these people cannot find jobs simply because they are not qualified. The new jobs mostly go to people who move to Berlin because of these jobs.

The German job market might be thriving, but our high technology industry demands highly graduated people, and people without a proper qualification
very often just stay unemployed. And the service industry (though tourism plays a major role in Berlin's recent rise) cannot even be compared to American standards due to cultural differences (oversimplified: we tend to feel bad when being served).

So even if the economy in Berlin is getting better it won't get much better for those who'd need it most any time soon: the long-term unemployed.

Apologies for my bad English.

The (German) source:

Posted by: Vokoban on November 10, 2010 at 1:28 PM | PERMALINK

The RSS feed for this blog brings up posts from "Showdown 06". Can someone fix that?

Posted by: PeakVT on November 14, 2010 at 10:48 AM | PERMALINK

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