Friday, May 09, 2008

"How Europe Avoided our Mess"

An interesting article that I thought some may enjoy- originating from the Boston Globe. It details how our economy, which used to be the envy of the world, tanked out.

The credit crisis... was the result of an almost religious belief in deregulation. It is instructive to consider the economic situation in nations that resisted deregulation.

....Europe also has high domestic savings rates and balanced trade accounts with the rest of the world. Europe, unlike the U.S., is not increasingly in hock to China. The high Euro, the flipside of the cheap dollar, protects the European economy from inflation. And despite using an expensive Euro that has appreciated 60 percent against the dollar in six years, Germany is running record trade surpluses.

How can that be? As German Chancellor Angela Merkel once twitted Britain's then Prime Minister Tony Blair, "Mr. Blair, we still make things." By contrast, the Brits and their American cousins think financial engineering is economic salvation. They don't seem to mind that if manufacturing keeps moving offshore, which is devastating for the trade balance.

In a recent interview, Germany's Gunter Verheugen, the vice-president of the EU, told me, "We need a strong and competitive industrial base in order to have a strong service economy. Don't try to be cheaper. Try to be better. Don't try to compete on low social standards."

Well said. Applicable to state economies also.
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