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Eurozone crisis

Opinion: Europe needs more positive examples of reform

Spain’s difficult austerity measures are beginning to bear fruit, while the French government is being torn asunder by austerity politics. Europe needs more positive examples of reform writes DW's Christoph Hasselbach.

What do France and Spain have in common? Both countries suffered greatly during the debt and financial crisis, Spain more than France. Residents of both countries are incensed by the consolidation politics their governments are practicing. The leaders of both countries, conservative Spanish Prime Minister Mariano Rajoy and Socialist French President François Hollande have, with Italian support, tried to soften European austerity measures for a time, despite their political differences. Their most important adversary? German chancellor Angela Merkel.

Today Spain and France are on different sides. During Merkel's visit, Rajoy could tell his fellow citizens that the austerity measures have paid off. Spain is getting on its feet again. Either through German pressure or from insight, Rajoy eventually joined Merkel's line and now says there can be no growth without consolidation and reform.

Christoph Hasselbach. (Photo: DW)

DW's Christoph Hasselbach

Hollande and Montebourg think alike

This is not the case in France. Admittedly, Hollande is finished with the leftist Economics Minister Arnaud Montebourg, who campaigned against a German-dictated austerity course and called consolidation politics absurd and unjust. Yet by sacking Montebourg, Hollande wants first and foremost to reestablish his authority. He and Montebourg were closely aligned on substantive matters. Until today, the French president has shied away from sweeping economic reforms and never misses an opportunity to speak about government-stimulated growth. The result of these policies: fiscal deficits and unemployment remain high, the French economy is suffering long-term weakness, and worst of all, French competiveness and market share of this once powerful and diversified industrial nation is declining rapidly. Italy has the same exact problems, but Prime Minister Matteo Renzi, also a socialist, is giving the same lament about excessive "German" austerity measures that absolutely must be relaxed. Nothing is said, however, about the fact that these measures were brought about by shared EU decisions.

A brief respite is no excuse for inaction

Meanwhile, the European Union has tried to be accommodating to weaker countries. For example, the European Commission is giving them more and more time to meet certain deficit reduction targets. The European Central Bank is also doing all it can to give these countries' economies time to reform. But these countries must also use this time.

But politicians like Hollande and Renzi are confusing this brief respite with a permanent condition. In their opinion, the state should concern itself with demand - the same state that is up to it's ears in debt almost everywhere in Europe. Germany, in a crude idea that is still suggested more and more often, could potentially raise its own taxes in order to make itself less competitive so weaker countries can grow. Even in the European Commision, there is talk of an allegedly harmful "imbalance," in Europe.

There is another way

The problem is that this measure, once adopted, would indeed flatten this imbalance - it would be a complete race to the bottom. All of Europe would fall back into competition with China, the US and Brazil. It would lose market share and wealth. The truth is: France, Italy and other countries cannot escape sweeping reforms. Some of France's big problems are the 35-hour workweek, the low retirement age and the high public spending ratio. In Italy, the rigid labor market is the concern.

There is another way to deal with the crisis. Initial successes in Spain confirm this, and Ireland has stabilized itself again with EU help as well. The Baltic states have also pulled their economies back up from the bottom without a bailout. It wasn't easy, but it was necessary. Merkel, with her own exemplary country, must admittedly live with a cruel irony. The crucial reforms in Germany were passed before her by a Social Democratic chancellor. And the current government is poised to squander away its competitive advantage through mothers' pensions, the possibility of early retirement and the minimum wage. Germany unfortunately no longer stands for the very austerity for which is it both admired and criticized abroad.

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