François Hollande Wins French Presidency: Merkel’s Economic Taliban Austerity Rejected

Sunday’s elections in Europe occurred in three countries with diverse economic circumstances (France, Germany, and Greece); and they were for different levels of government (presidential, regional, and parliamentary respectively). Add to this rout last week’s Dutch rebellion against austerity and the resultant collapse of the Dutch government. The clear common message from the electorate is undeniable, reminiscent of a famous line in the 1976 movie Network: “I’m as mad as hell, and I’m not going to take this anymore!”

Europe’s electorate is angry and has lost confidence in the ability of in-place politicians to solve their crisis. Hollande’s victory means the end of “Merkozy,” the Franco-German confederacy establishing the past two years austerity regime. Stocks moved down initially on the result as conservative investors and business acolytes perceive the french socialist as dangerous to their interests. Perhaps they would have a point if the austerity strategy were working…or, maybe had a reasonable chance of working. Austerity isn’t and doesn’t… time for a changed course.

What’s wrong with the current German Austerity Regime? See previous posts, “Transform France Into A German Economic Model? Me Thinks, Not So Fast…” and “Europe’s Debt Trap: Austerity Is The Wrong Path.”

As American economist Paul Krugman wrote, “Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.” Citizens yearn for alternatives but, as yet, are not coalescing around a common view of what these should be, just as in the United States. As a result, political realities will complicate even more what is an already tenuous economic and financial outlook for Europe, the world’s largest economic area.

Compromise and a new course should rule the day with coordinated stimulus added to mitigate austerity, and this must include,

• greater harmonization of labor markets and corporate taxation,
• imposition of financial transaction fees, and
• proper rebuilding of the eurozone structure/european central bank with,

1. common eurobond issuance funding all national governments in conjunction with the new common fiscal harmonization pact,
2. ECB purchase of government bonds like a U.S.-styled Quarterly Easing program as instituted by our own Fed — and…
3. in particular, to assign a new mission for the European Central Bank away from obsession with inflation and toward focus on growth.

Europe must pull together in their anger and act as one interest, instituting intergovernmental transfer payments from wealthier EU regions (states) to those in need, just as occurs already in individual EU states internally with money transfers ongoing from Western Germany to the former East Germany, Northern Italy to the poorer Southern Italy, London and South England to Northern England/Scotland… just as transfer payments and block grants within the U.S. ameliorate regional economic disharmonies without turmoil (aside from the occasional right-wing rant).

What Europe needs in order for these significant changes to take root is the sudden appearance of decisive leadership at the EU-wide national level to overcome long-standing impediments to growth, jobs and financial stability. What they will receive more immediately is greater fragmentation amongst regions as cross-border coordination and collaboration grow more complicated with new political interests empowered.

I have faith in my beloved Europe that they will kick the s+#t out of each other and then regroup and dynamically move forward on the required reforms mentioned here…for without them, all European political and business leaders know that Europe will devolve into small nation-states at the mercy of jungle-violent globalization…where the a#^-kicking will be unrelenting.

These institutional changes and greater solidarity will only materialize properly in the context of a clearly articulated vision of what a unified Europe should look like in three years’ time. And that will take inspired and inspiring leadership of dynamic Heads-Of-State.

Holland of France is on stage. A Deutsch progressive Chancellor willing to speak for more than just wealthy Germany must replace Merkel in 2013. Then, competent, newly installed pro-business technocrats in Italy and Spain will join in unison, followed by the Benelux and Scandinavian countries. New Europe (the former communist bloc) will have little choice but to take up the mantra and get in line.

Transmission Problems With The Economic Engine Of Prosperity For All

Several decades ago, as I completed earning a university degree in Economics, I contributed to a white paper for the White House and detailed in several newspapers the fact that U.S. living standards were only being maintained because most households had two earners, and I lamented this fact signaled the decline of America’s ability to provide generation after generation with a steadily improving life — that it signaled a sputtering in the economic engine of progress.

Back then, I believed that a monetarist policy at the Fed combined with a supply-side policy instituted by the Reagan administration would be just the right formula to clean out the engine valves and boost the octane fueling the economic engine.

Now, in the second decade of the twenty-first century, it requires well more than two earners working to equal the wages of a one-income household of 40 years ago. In fact, wages have plummeted so low that a two-income household is now (on average) 15% poorer than a one-income household of 40 years ago.

Wages & Standards

With the year 2000 as a base, real wages peaked in 1970 at around $20/hour. The average worker today earns $8.50/hour — more than 57% less than real earnings in 1970. Moreover, as the average wage directly determines society’s standard of living, it may accurately be said that the average standard of living in the U.S. has plummeted by more than half over the last 40 years.

The green line shows average wages, discounted by inflation calculated with the same methodology for all 40 years, properly comparing any data over time… applying identical parameters to it each year.

Then, there is the blue line: showing wage data discounted by the “official” inflation rate. Why two inflation deflators? What’s the problem? The methodology used by government to calculate inflation in 1975 is different from the method used in 1985, which is different than the method utilized in 1995, which is different than the method of 2005.

Technology & Standards

To be certain, technology has improved such that the “standard” has shifted and provided a lifestyle unimaginable or unattainable in the past; i.e., today, nearly all persons of age have a personal cell phone and internet access (hence access to instant communications); access to music proliferates on numerous mobile devises (not just families able to afford large stereo systems, or further back, their own music chambers); and the list goes on.

As they say, though, all things are relative. And, thus, to say that one has access to “absolutely” more of something now, or to something that never previously existed, is not to say that they have access to more or better… relative to what their predecessors had relative to their own time. Standards change.

If the death rate from cancer devolved back to that from 1960, would it be correct to say that’s acceptable because even then it was better than the survival rate from the 18th century? Of course not. Standards improve, and if the average person in a period can’t maintain their relative position over time in that moving standard, then we have declined was a society. Here is where America rests today.

99 To The One

Back to the chart; inflation for the last 40 years has hidden the 57% collapse in the standard of living for the average person. Nonetheless, if you’re fortunate enough to be at or successful enough to have earned a place at the top of the income charts, the situation is significantly reversed in your favor. While average American workers have seen their wages plummet by 57% over the past 40 years, in just 15 years (1992-2007) the 400 wealthiest Americans saw their incomes rise by 700%.

Now we have the complete picture: wages crumbling steadily lower year after year, decade after decade for “The 99%,” while earnings skyrocket for “The One Percent.” Is that acceptable? I don’t know… is going back to the cancer death rates of 1960 acceptable to you because that’s still better than it was in 1700?

Transmission Problems

Suffice to say that even after our massive economic/financial collapse of 2007/2008, our economic engine is running strong as the economy has fully recovered… as an engine (output and profitability exceed the high before the collapse). However, as could be observed after recovery from the 2000/2001 recession, ours is no longer an engine of economic progress broadening prosperity. The problem it seems is with our transmission, as the power of the engine is not distributed to improve the standard of life for all — or even just the majority — of Americans.

To this point, the causes of our transmission problems are equally obvious in terms of categories, although the actual analysis of those causes is more complex and beyond a simple blog post.

1) Taxation repression. As has been noted in this Presidential runnup, Romney’s 15% income tax rate because he doesn’t “earn it” though work but through investing his funds in the right slot machines on Wall Street is inherently unjust and inequitable. Billionaires now maintain the largest fortunes in history — while ordinary people who “earn” their income have been turned into “the working poor” paying significantly higher tax rates than the slot machine winners on Wall Street.

2) Systemic/structural unemployment. Technology always eliminates jobs faster than it creates new opportunities. With time though, technology tends to offer up more and better jobs, historically, given a long enough time horizon to adjust to the technological leap. In the meanwhile, gaps and dislocations occur. Given contemporary, unceasing acceleration in technology, our economy is in effect “permanently” reducing jobs (and creating structural unemployment). Today, the technological change and productivity increase is nearly continual…along with job redundancies.

 In our past, we as a society offered up income support and training programs to assist in the transition. Most importantly and effectively, we dealt with this structural unemployment by shortening the work week every few decades…until our current time. The basic work week at the Dawn of the Industrial Revolution was 7 days a week, 12 hours a day — an 84-hour week. For 200 years, our government steadily shortened the work week to our current 5 days a week, 8 hours a day — a 40-hour week — and our society grew steadily more prosperous.

Refusal of our government to shorten the work week (which is really voters’ economic and historic memory lapse put into practice by the reps they elect) is a systematic path that maintains massive unemployment — the strongest downward driver of average wages. Voters support and reinforce this process with a mantra of less government and hopeful/naive belief in the sanctity and divination of unfettered “free markets.” I’ve read other columnists and economists in Europe refer to their own version of this mantra as “Merkel’s Economic Taliban.”

3) Oligopolies. It is elementary (meaning basic Econ 101) capitalist theory that monopolies and oligopolies are cancers to be prevented. By definition they are caustic and anti/non-competitive — they have absolutely no productive place in any capitalist economy. Yet today, the global economy is overwhelmingly enmeshed with gigantic, non/less-competitive oligopolistic entities…the revered multi-nationals. Diminishment of our societies is an inevitable result.

4) Indebtedness. Most Western governments are well past the Rubicon in indebtedness. Nonetheless, it makes no sense to completely hollow-out and starve economies with some form of Milton Friedman-Hayek/Mises Austrian Economics Austerity (as done in Greece and Spain and Italy) — only to end up with an even larger default in the end. Had bond vigilantes accepted a 50% haircut at the beginning of Greece’s debt-crisis, Greece’s economy would have remained intact, and they would have salvaged a larger share of their debt obligations (rather than the 75% default with which they ended). In the end, around the world, all sovereign debt bond holders will take a haircut. It’s a fact. Reality. OK. Build up reserves and get ready for it. Once done, we can implement a proper system of running surpluses in good years and deficits in economic down years…and we the people will have to accept that this is as it must be.

It is time to address and correct this tragedy of the collapse in our standard of living…time to address the transmission problems with the economic engine of prosperity for all.

Productivity, Profits & Wages — Two Charts That Tell The Story

Now Is The Winter Of Our Discontent — A Liberal’s Calm Before The Storm

Made glorious summer by this sun of Windy City;
And all the clouds that lour’d upon our house
In the deep bosom of the ocean buried…

…for how long?

For some of us the inauguration of Barack Obama ushered in the potential for an era of liberal progress, of recovery from the dark clouds of George W. Bush… illegal wars, reactionary social policy, and economic destruction.

The republican party nomination process stimulated my presaging fear of tumult as I witnessed enthusiastic applause for the proposed destruction / elimination of women’s’ rights, civil and marriage rights, health care access, criminalized physical expressions of hate, and responsible stewardship of earth’s resources.

While I know that I am not alone in my liberal desires for a more progressive and better nation, it sure feels a lot lonelier.

As I contemplated my sense of alienation and just how far I am away from the American political norm, a battery of political spectrum tests proved that, indeed, I am a Liberal Elite in a right wing, conservative nation…and it is not a good feeling.

For the Liberal Elite contemplating the national mood, it may soon be another kind of Winter…the end (winter) of our contentment…

Bush Vs. Obama: Employment & Public/Private Sector Payroll Jobs

Two graphs compare public and private sector job losses (or adds) for President George W. Bush’s first term (following the “dot-com” stock market bust), and for President Obama’s current term (following the housing bust and financial crisis).

Note: Many differences exist between the two periods. Though both followed the bursting of a bubble (stock and housing), the housing bust also led to a severe financial crisis. As Reinhart and Rogoff document, recoveries from financial crisis are usually extremely sluggish: “The Aftermath of Financial Crises“.

Click on graphs for larger images.

The first graph (above) shows the change in private sector payroll jobs from the beginning of Mr. Bush’s first term compared to Mr. Obama’s current term.

Obama – more recovery over shorter period.

The employment recovery during Mr. Bush’s first term was very sluggish. Notably, private sector employment was down 913,000 jobs at the end of W’s first term.

Recovery during Obama’s presidency has been sluggish, too. We are still down 247,000 private sector jobs from when Mr. Obama’s term started; though, significantly, this situation will likely turn positive in just a couple of months.

Obama will end his first term in office with more private sector jobs existing than when he took the oath. We then have to make up for the jobs lost at the end of W’s term.

A big difference between Mr. Bush’s first term and Mr. Obama’s term has been public sector employment (see second graph, above).

The public sector grew during Mr. Bush’s term (adding 900,000 government jobs), but the public sector has declined dramatically since Obama took office (less 590,000 government workers).

Let me make that clear: the free-marketeer anti-government conservative grew government payrolls dramatically during his first term… while the socialist/”communistic” pro-government liberal saw government payrolls shrink. Hummm…

It appears the public sector job losses are slowing, and it looks likely that the decline in public payrolls will probably end mid-year 2012.

So, if Republicans don’t screw it up, this year should see significant job growth overall, with most of it in private sector jobs and no more losses of public sector jobs.

Gas Prices: It’s Obama’s Fault!…Or, Is It? — Part 2: Refining Bottleneck

As a follow up to my October 11th post outlining the factors “not Obama” that are increasing gasoline prices, I was challenged by the same anti-Obama businessman I mentioned to explain this “supposed” refining capacity bottleneck.

Ok… here ’tis:

Here’s the bottleneck in a graph. No matter how much crude oil is brought out of the ground or imported, the bottleneck is that US refining capacity has not increased in over a decade (actually you’ll see later, it’s about two decades). That folks is what’s called a “bottleneck.” Very simple. The gap between demand and what we have the capacity to refine is imported at substantially higher costs.

“Yeah, well, you know dude, the free market will fix that!”

Really? ‘Cause here’s the federal EIA outlook up until 2030. Um…barely any capacity improvement. And the gap between demand and what the US can refine: goes from a shortfall of a little more than 3 million barrels of oil per day to a gap of almost 8 million barrels of oil per day. The gap is made up by importing expensive refined product from abroad.

Ooops! Looks like a lack of energy industry progress.

Now, let’s look at what the energy industry and the feds have to say about our refining capacity and the coming urgent problems:

From U.S. Energy Information Administration (EIA), “Refining: Petroleum & Other Liquids”

“U.S. refining capacity, as measured by daily processing capacity of crude oil distillation units alone, has appeared relatively stable in recent decades, at about 16 million barrels per day of operable capacity—the level is a reduction from the capacity of twenty years ago. …the first refineries were shut down as demand fell in the early 1980′s. …additional refineries were shut down in the late 1980′s and during the 1990′s, always, of course, those at the least profitable end of a company’s asset portfolio.”

The report notes a mediating factor: “At the same time, refiners improved the efficiency of the crude oil distillation units that remained in service by “debottlenecking” [internally] to improve the flow and to match capacity among different units and by turning more and more to computer control of the processing.”

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Nonetheless two contravening facts deny the relief of improved capacity utilization efficiencies so that refineries continue to function as “the bottleneck:” 1) Continued shut down of refinery facilities reducing total potential capacity levels and 2) A turn to exporting American refined oil products to industrializing, higher profit margin international markets.

___________________________________________

From ”Rising Gasoline Prices 2012,” Congressional Research Service (R42382), March 1, 2012

“Two large oil refiners in the Northeast, Sunoco and ConocoPhillips, have decided to close refining assets.  Sunoco announced the closure of its Marcus Hook, Pennsylvania refinery on December 1, 2011, followed by ConocoPhillip’s closure of its Trainer, Pennsylvania refinery later that month.  Sunoco also plans to close, its Philadelphia refinery. Together, these three refineries comprise over 50% of refining capacity in the Northeast.  Higher wholesale price margins would be required in the Northeast to draw supplies from other areas to make up for the loss in refining capacity.”

“Separately, the Hovensa Refinery in the U.S. Virgin Islands is also closing. Most U.S. refined product imports from Europe and the Virgin Islands go the East Coast.”

“Europe, a major source of U.S. gasoline imports, has also experienced a reduction in refining capacity recently. It has been reported that Petroplus, the largest European independent refiner, has begun shutting down three of its five refineries.  (As a result of these closures, Europe may also seek to draw greater supplies of diesel fuel from U.S. refineries.)”

From EIA February 2012 Executive Summary of Report. “Potential Impacts of Reductions in Refinery Activity on Northeast Petroleum Product Markets”

“…price impacts are highly uncertain. …in the short term, prices can spike. In the longer run, higher prices and possibly higher price volatility can result…loss of the Sunoco Philadelphia refinery presents a complex supply challenge, and no single solution has been identified by industry participants… The industry will have a financial incentive to serve all markets in the Northeast, and companies are currently investigating options. However, companies are not [soon] likely to make significant investments in new logistical arrangements…”

From The White House, March 11, 2012, “A Secure Energy Future: A Progress Report.”

The U.S. refiners export gasoline, and that shrinks national supply. Though placing a positive spin by extolling the virtues of a “world-class refining sector,” the report revealed a “refining sector that last year was a net exporter for the first time in sixty years.”

Report by Ron Scherer at the Christian Science Monitor, ““As Gas Prices Rise, Should US Oil Industry Stop Exporting?”

The oil industry maintains it must export to stabilize profits and avoid layoffs. Observers contend the new status of refiners as “net exporter[s] for the first time in sixty years” keeps domestic supply low and gas prices high.

“The oil industry maintains the exports are necessary because domestic demand is weak. The industry says if refiners could not send American-made gasoline to China, India, Europe, and South America, the refineries would have to close as several have already done on the East Coast. Yet, other energy observers say exporting gasoline at a time of rising prices is sort of like throwing flammable liquid on a fire.”

TADA! US Refining Bottleneck!

Not the fault of Obama… the fault of industry.

Gas @ $3.79! It’s All Obama’s Fault!…Or Is It?

Two weeks ago I had the unfortunate displeasure of suffering cocktails with a confused businessman. He owns and manages a firm that processes payroll for a large city school district, so one might reasonably assume a certain level of intelligence and sophisticated thinking. Well, I did. Puh! Should’ve thought otherwise.

About a half hour into what had been otherwise a congenial conversation, and from nowhere, this fella spits out, “So…Obama…A fucking Communist, right!” I think my response nearly set his hair on fire.

The next thing out of his mouth is this party-line diatribe folks are attempting to foist onto the public: “My God! Obama has caused gas to skyrocket! His policies have practically shut down oil production in the US!”

Hummm? Gee I thought it was because the oil industry has chosen, under the reign of free market ideology, not to expand or build additional refining and gasoline processing facilities? ‘Cause, when I look at the numbers…they show more oil wells and more gas wells and more of practically everything geared to get product out of the ground…but no industry effort to expand processing to useable fuels for your SUVs. Gees, do you think that bottlenecks things? Maybe.

And, do ya think that maybe an industrializing China and India have increased total demand? Maybe. And do ya think that given the tensions between us and Iran (and the constant party-line drumbeat to Bomb Baby Bomb!) and the threat to the Strait of Hormuz through which most of the oil passes… that maybe the oil speculators have speculated oil futures high? Maybe.

Gees…this stuff isn’t difficult…just doesn’t fit with a mindset that thwarts all reasonable efforts to develop alternative fuels, increase our auto efficiencies, and implement effective and efficient mass transit across the nation.

No, I’m afraid it is shortsighted policies from conservatives and threats to oil transport and the pressures of speculation within a free market and industry refusal to expand gasoline refining capacity and a newly resurgent American economy that are driving gas prices higher.

Where were gasoline prices before the markets and the Bush economy crashed? Oh, yeah, about where they are now (Sept ’08 just before the crash: $3.86… March ’12 as economy grows again: $3.79). Things that make you (thoughtful people) go hummm….

Global Warming Controversy — Which Makes Sense?

Note To Republicans: Patriarchy Is Medieval

We have allowed ourselves, as a society, to slip back into medieval thinking… Fight against it!

Transform France Into A German Economic Model? Me Thinks, Not So Fast…

German Chancellor Angela Merkel crossed traditional bounds and now campaigns vigilantly for her center-right colleague, current French President Nicolas Sarkozy, as the beleaguered French president has fallen behind in polls against his rival socialist candidate. Merkel intends to defend center-right policies and the German economic model in France, as she attempts to implement the model across all of the European Union.

Francois Hollande, socialist challenger for the French presidency, has honed his general opposition to the German-led fiscal discipline treaty under EU member states’ consideration by outlining the concrete changes he would like to see made to the document. Hollande suggests that the proposed fiscal discipline treaty imposes too much of Berlin’s belt-tightening policy (Austerity) on the EU and lacks growth initiatives.

Recently, Chancellor Merkel appeared in a joint television interview with the French president, who has fully aligned himself with German economic thinking, and said she would support him “whatever he does.” And what he does is want to transform France into the industrial economic miracle of Germany. The question is begged: why the economic self-doubt by France’s President?

President Sarkozy wants France to become more like Germany, and in a recent speech he made 15 positive references to the German economic model.

Unlike France, he argued, Germany had reformed its economy and was reaping the rewards of improved competitiveness and superior economic performance. He lamented the alleged decline in French industrial prowess and praised Germany’s success at defending its industrial base in the context of globalization.

Is Sarkozy correct in being so self-critical of French performance?  And would it make sense for France to emulate the German model?

Sarkozy is certainly right that Germany is a more industrial economy than France. The share of the French economy accounted for by industrial output is as low as in Britain (a country Sarkozy likes to deride as “having no industry”) and lower than the US. Germany’s share of world export markets has also held up remarkably well over the last ten years, whereas France’s has fallen steadily.

Nonetheless, the relative size of a country’s industrial sector may or may not have implications for its economic success. Observe Italy, with a comparably-sized industrial sector to Germany, but which is readily the worst performing large developed economy. Japan also has a very large industrial sector yet has stagnated most of the last 20 years.

France actually has a reasonable economic record relative to Germany’s.

• Between 1992 and 2001, France managed annual GDP growth of 2.1 percent compared to Germany’s 1.6 percent. Over the subsequent ten years -– 2002 to 2011 -– both countries grew by 1.1 percent per year.
• Although the German economy performed better in 2010 and 2011 than its French counterpart, the two countries’ growth prospects are very similar according to the European Commission, the IMF and the OECD — all three forecast growth of 0.5 percent in 2012 and 1.5 percent in 2013.
• Productivity may be a good indicator of economic performance: Productivity per French worker is higher than in Germany, while productivity growth averaged 0.7 per year in both countries between 2002 and 2011.
• As recently as mid-2008, rates of joblessness were the same in the two countries. But Germany’s labor market performance has been superior to France’s over the last three years. By the end of 2011 the rate of unemployment had fallen below 6 percent in Germany, whereas it has risen to nearly 10 percent in France. However, a significant demographic element led to this change –- due to a very low birthrate, Germany has far fewer people entering the labor market than France.

Something far more vital than a better, finely tuned industrial economy effected the change in balance between Germany and France.

The “Hartz reforms” of former German Chancellor Gerhard Schröder’s government undercut the bargaining power of labor, and succeeded in “pricing workers back into employment,” albeit often at much lower wages than previously known in Germany. Adjusted for inflation, employee wages fell by 2 percent from 2002 to 2011, compared with a rise of over 10 percent in France. In turn, this reduction in relative wages impacted private consumption negatively, and over the same period, private consumption grew by just 4 percent in Germany, against 17 percent growth in France.

To the extent that Germany has become more “competitive,” it is not because of  German superior productivity growth but rather because of wage restraint — and the resultant reduction of wage-based inflation. As a result of such income compression, Germany’s real effective exchange rate within the eurozone fell by 17 percent between 1999 and 2011, making its exports much more price competitive. Meanwhile, for the same period, France’s real effective exchange rate rose by 4.4 percent.

Germany’s internal devaluation contributed to a big divergence in the two countries’ relative trade positions. Whereas ten years ago France and Germany both had small current account surpluses, France is now running a deficit of around 3 percent of GDP, while Germany is running a surplus of 6 percent. To be truthful, such an effect was indeed the goal of Germany’s labor market changes… but at the expense of workers’ incomes, domestic consumption, and the social condition.

German Austerity Model For France?

France and Germany have similar levels of public debt, at just over 80 percent of GDP. Concerning the yearly budget deficit, whereas Germany’s fell from 4.3 percent in 2010 to a little over 1 percent of GDP in 2011, France’s yearly deficit came in at 5.7 percent (down from 7.1 percent in 2010). Sure, France has need to strengthen its public finances, but mitigating factors deserve acknowledgement.

First, the French government has been more concerned with maintaining growth in domestic demand than its German counterpart.

Second, over a third of the difference in the size of the deficits in 2011 was accounted for by much higher levels of public investment in France — 3.2 percent of GDP compared with 1.7 percent in Germany (the second-lowest level in the EU).

Neglecting public investment harms the overall good of the nation eventually, though… witness the crumbling infrastructure of the United States. Germany’s rail system has already fallen greatly behind that of France.

German Hartz Reforms For France & EU?

French President Sarkozy is right to be concerned about France’s economic performance. In common with most of Europe, the country seems stuck. Nonetheless, the second largest economy in Europe must draw the right conclusions from what has happened within its neighbor, Germany.

Yes, France absolutely must reform its labor market — retirement age is too young and it is too difficult to terminate non-performers. Currently, those with full-time jobs earn employee rights and generous entitlements — the hallmarks of an advanced society — even while these same benefits are a disincentive for firms to hire people on a full-time basis and relegate the youth to a tenuous reliance on temporary jobs.

However, Germany’s labor market reforms might not be the best solution for France… or Europe. Germany has been able to pursue such a strategy only as other EU countries have not. Should France attempt to emulate German wage constraint, it would prove a largely zero-sum game as the move would depress domestic demand in France and across Europe, in the process worsening the eurozone crisis and leading to more layoffs.

Certainly, Germany offers many examples for France and other EU countries to follow. Still, a large industrial sector and a big trade surplus are not the exclusive indicators of economic ability and capacity. Note that, for every country running a trade surplus, another must run a deficit, and it shall never be otherwise.

Economist Milton Friedman argued that trade deficits were not intrinsically bad. Who, he asked, has done better when one trades 10 dollars worth of goods in exchange for 15 dollars worth of goods? The one nation sold more of what it produced (which employs labor and expands business) while the other got more for less. The answer as to who has the advantage is unclear.

France has its share of weaknesses, but in important aspects, the French model — where the economy is largely propelled by domestic demand, high productivity, and extended leisure time — holds out better prospects for a return to economic growth across the eurozone than does the German economic model, I must protest.