French President Francois Hollande recently faced the press after yet another round of bad news. The eurozone economy shrank for the sixth quarter in a row, the longest recession since the single currency was launched. In many European countries, conditions are the worst they’ve been since World War II. Unemployment in France stands at a dismal 10.6 percent, and its economy contracted by 0.2 percent in the first quarter. Yet some nations (hello, Greece) would throw a party if they could get to those numbers.
Hollande took aim at his usual target: European Union officials, led by Germany, give him no choice but to cut deficits by reducing public spending. Those bullies want looser labor-market rules and less red tape! What’s a socialist to do?
We’ve seen this act before. Hollande is trying to placate domestic voters by shifting blame. But the blame falls right at home; France has overspent and overborrowed. It has to re-balance its budget. It needs market-friendly reforms to encourage business expansion and job creation. The same goes for much of the rest of the continent.
Europe may have avoided a complete economic meltdown, but it remains in a deep malaise. Italy and Spain reported large economic contractions in the first quarter. Tiny Cyprus, a eurozone member, has entered its third year of recession. Greece reported its 19th quarterly contraction. Unemployment stands at double-digits in many nations and youth unemployment is far worse.
Many of Europe’s most prominent leaders won’t — out of core belief or political fear — impose reforms that would create more short-term pain, but would in the long-term stabilize government finances and promote private-sector job expansion. They hesitate, and Europe stagnates.
Talk about stalling: Hollande got a two-year extension of the deadline for France to cut its budget deficit to the European Union-mandated 3 percent of gross domestic product. He did get the French legislature to loosen the nation’s restrictive labor code, which will help France be more competitive, but that earned him the enmity of his fellow leftists.
The prescription for Europe hasn’t changed. It has to establish common banking rules and fiscal restraints throughout the eurozone. It has to free its business sectors to compete on a global scale — especially by easing rigid labor market rules that discourage investment and expansion. U.S.-Europe free trade talks would bring economic rewards to both sides, but that’s likely a two-year negotiation.
Austerity is unpopular, but it is necessary, and it will work. Europe’s public payroll has ballooned over the past decade. Government benefits and subsidies have become unsustainable. They have to be scaled back.
Borrowing still more money to keep the status quo afloat isn’t a viable option. The days of fiscal excess and indulgence must give way to a more disciplined approach. Some Europeans see that clearly — Germany’s Angela Merkel, for instance — but not all do.
What’s the matter with Europe? No ailment that can’t be cured. But the patient has to recognize the disease.