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Europe: Give Growth a Chance


Croissance. Wachstum. Crescita. In the languages of many Europeans, "growth" has been a pejorative -- an activity best left, say, to aggressive Americans and workaholic Asians. If the U.S. economy had a spectacular run over most of the 1990s, well that just led to a stock market meltdown over the past three years. This attitude was more than apparent at a recent day-long meeting of France's top 70 economists, who gathered to look at ways to make the country more efficient and productive. Some of the economists questioned why France should even try to have a growth rate of more than 3%. "What for?" one asked.

Fortunately, it looks as if growth may be coming back in style in Europe. Sure, when you've been deprived of it for so long, any uptick in the economic pulse rate looks promising. This year, for example, economic growth in Germany and France will likely clock in at less than 0.85%. Yet another factor is at work. Witness the decision by the center-left government in Germany to bring forward over $17 billion in income tax cuts next year in a move to spark economic growth. Already, France, which would also like to cut taxes, is applauding the move. It's much easier for Paris to cut taxes if it knows that its large neighbor is also doing it. Such moves go against the European Union's six-year-old Stability & Growth Pact, which requires governments to keep budget deficits within 3% of gross domestic product. But for more and more Europeans, that has meant promoting stability at the expense of growth for too long.

European corporations are certainly getting the message. They have been rapidly cutting debt, selling off noncore businesses, and repositioning themselves to grow rapidly. The debt load at Deutsche Telekom, for example, is 11% lower than at the end of 2002. That's one reason it reported a profit in the first quarter of 2003 after a whopping $29 billion loss last year. Indeed, the BusinessWeek Global 1000, a ranking of the world's most valuable companies by market capitalization, indicates that the sickening slide in values is coming to an end, even in hard-hit Europe. With some luck, Europe's corporations are now set to grow again.

It may at last be dawning on many Germans, French, Austrians, and Spaniards that maintaining some of the benefits of the European welfare state, with its quality universal health care, decent schools, and livable cities, will only be possible with fast growth. The trick will be to make sure that all stakeholders in Europe, from unions to consumers and from retirees to managers, adopt growth as a mantra instead of an expletive.


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