Friday, May 14, 2010

Lets Talk Germany and France

All the conversation, so far, has been about the weaker, southern European countries. These are the profligate countries, so goes the story. Don't believe it.

Germany and France are basket cases. Their banking systems are in dire straights and much of the rationale for the recent Trillion dollar rescue package was based on the desire to prop up the larger commercial banks across Germany and France. Neither of these countries has seen any real economic growth for two decades and their growth rates today fluctuate around zero.

German and French debt? Big trouble lies ahead. These countries have rigid labor laws that perpetuate high levels of unemployment and discourage young people. These are demographically old societies that are growing dramatically older. Both countries have angry minorities that have never shared in what prosperity there is in these countries. The battle ahead will be to be to fend off the young and the minorities, who are expected to pay for health care and retirement benefits that they cannot expect for themselves. This unfortunate dynamic will dominate the politics in Germany and France for the next decade. The outcome is unclear.

But, what is clear is that neither Germany nor France will experience any real economic growth. Both economies will stagnate, even without the the perils of picking up a new Trillion dollar liability for the likes of Greece, Portugal, Spain, and Italy. The idea that Germany and France are the stewards of fiscal sanity is absurd. Germany, France and the UK for that matter are headed for fiscal disaster with or without the current debt problems of southern Europe.

1 comment:

Vid said...

Why are GER and FR going to face fiscal disasters in any case?