November 10th, 2011
03:30 PM ET

Europe's real problem: Lack of growth

By Fareed Zakaria, CNN

I was in Germany this week and the mood there is pretty grim: Europe is facing its most severe challenge since 1945. If the Greek crisis morphs into an Italian crisis - Italy being too large to bail out - the entire structure of post-World War II Europe could unravel.

Finally, European leaders seem to recognize that their strategy of kicking the can down the road has not worked. The result will not be a dramatic solution - that is not how Europe works - but, more likely, a series of steps that together will be more comprehensive than anything done before. But they will not address Europe's core problem: a lack of growth.

The Europeans - by which I mean the Germans - are trying to find some solution to this crisis that will not let countries like Greece and Italy off the hook. Germans feel these countries need to feel the pressure - only then will they reform their budgets and their habits. So the solutions will be complex - trying to stop a crisis while not bailing out these countries entirely.

The real problem - however - is not so much that Greece has been unwilling to make sacrifices. It has made many. But Greece's budget numbers look bleak because its growth forecast looks bleak. It needs to address a much larger question of competitiveness. What can the Greek economy do to attract capital and investment? And at what wage levels? These are questions most European countries will need to answer to fully solve their problems.

Italy's economy has not grown for an entire decade. No debt restructuring will work if it stays stagnant for another decade. Even Germany is not immune, with an average growth rate of only 1.5%. German officials know that with a declining population, in five to seven years the country is likely to grow at an annual rate of just 1%. That's not much of an engine for Europe.

Europe needs a crisis agenda to get out of its bind, but beyond that it needs a growth agenda, which involves radical reform. The fact is that Western economies - with high wages, generous middle-class subsidies and complex regulations and taxes - have become sclerotic. Now they face pressures from three fronts: demography (an aging population), technology (which has allowed companies to do much more with fewer people) and globalization (which has allowed manufacturing and services to locate across the world).

If Europe - and, for that matter, the United States - cannot adjust to this new landscape, it might escape this storm only to enter another.

For more on this, read my column in The Washington Post. For more of my thoughts throughout the week, I invite you to follow me on Facebook and Twitter and to bookmark the Global Public Square. Also, for more of my takes, click here.

soundoff (369 Responses)
  1. Tim

    Isn't it unrealistic to expect "growth" to happen forever? If you have finite resources that's a ridiculous idea. Part of the reason we're in this mess is because idiots expected the economy to grow without limit; now we're out of new frontiers, we have 7 billion people, and the economy is one big storm of excrement.

    November 13, 2011 at 2:06 pm | Reply
  2. Brian

    Europeans are politically volatile. If these countries use too much "austerity" you will see social upheaval such as happened in the thirties and they will have political extremism on the left and right. This is why their leaders "kick it down the road." Eventually there will be hell to pay in Europe.

    November 13, 2011 at 2:14 pm | Reply
  3. O.T.

    Europe has low economic growth b/c it has followed policies advocated by big-government elitists like Zakaria.

    November 13, 2011 at 2:30 pm | Reply
  4. Allenwoll

    What a herd of goofballs - ALL of you ! ! !

    Prosperity follows PRODUCTIVITY ! ! !

    We have but to dramatically increase human wage-productivity by technical means - and the economic and political problems will soon vanish ! !

    This has worked for 250 years (The Industrial Revolutions) - WHY should it not CONTINUE to work ? ? ?

    However, It MUST be FORCED now BY THE PEOPLE via government mandate - For there is no quick 90-day profit in it and so BigMoney will NOT touch it ! ! !

    November 13, 2011 at 2:52 pm | Reply
  5. Travler

    The only growth it seems is in taxes, and the more we are taxed the less we care about growth as we know it will cost us more taxes. Governments are running loose around the world and spending like there is no tomorrow and they are right. If they keep taxing us more and spending more the only solution will be world collapse. People and governments need to tone down their spending and look to putting more monies into savings and plans to support themselves. Governments need to reduce their spending and giving everybody everything that they ask for. People now expect others to support them, not at supporting them selves, but that money has to come to the working few. The poor have no money, the rich have too many loop holes, and the middle class end up footing most of the bill. We are heading for a crash that will make the Great Depression look like a Sunday outing.

    November 13, 2011 at 2:57 pm | Reply
  6. Reformer1

    Fareed-I have much respect for your opinions regarding the economic conditions that plagues us in our global economy. However, I have to say that we cannot sustain any continued growth with our dwindling natural resources. We have a finite amount of coal, oil, space, etc. and with world wide population growth growing at an alarming rate, these vectors have already begun to intersect and will continue to grow in opposite directions. We can't spend our way out of this problem. Yes, we need to better educate our society, but let us not equate education solely on economic performance and growth. We are going to have to get used to the idea of living with less and living simpler lives. Our Amish communities have the right motto: USE IT UP, WEAR IT DOWN; MAKE DO OR DO WITHOUT. Our religion of consumerism has its limits. We cannot continue our geocentric thought processes and expect unbridled expectation and growth, it's just not going to happen. We have reached that saturation point in our history where there are not enough solutions to our exponential growth that started during the industrial revolution. We are in the infant stages of a paradigm shift as we work with what we have been given and we realize that we truly own nothing . . . we have been given a lease on what we have, it can be short term or long term, it's up to us as responsible world citizens to decide what is truly important in our lives.

    November 13, 2011 at 3:19 pm | Reply
  7. ajgorm

    The Europeans – by which I mean the Germans – are trying to find some solution to this crisis that will not let countries like Greece and Italy off the hook.// Ya see now this is a social problem. More liberals vs zion/capitalist.How do you get a donkey to move is about as complex as how do you get Greece to pay their debt !

    November 13, 2011 at 3:28 pm | Reply
  8. ajgorm

    They must suffer and when they eat too much pie you cut them off and make them sweat it out. NO more Lobster time for spaM.

    November 13, 2011 at 3:29 pm | Reply
  9. Miss Demeanor

    RE: "Wake up, people! The uber-rich do not marry the uber-poor. As the wealth concentrates more and more, most of you tunnel-visioned entrepeneur class will become vassals of the kings!
    Everyone...needs to become less greedy and learn to live with what they have. "

    Some people have corporations. I doubt that you do. Few people run them well. That's because it is difficult and they have to answer to many people. Oversimplifying an issue (calling it tunnel-vision) is the quickest way to not get to the bottom of a problem.

    November 13, 2011 at 3:45 pm | Reply
  10. Willa45

    Which kind of growth does this article refer to? More People or More Productivity? A growing population will increase demand but if the supply comes from elsewhere (say China) how does that kind of growth solve low GDP in Greece? Increasing demand for more (imports) resources in a troubled economy would not solve the growing debt crisis either, it would worsen it. If this article is about economic growth, then troubled Eurozone countries need to increase GDP so they can bring down debt...that is what growth looks like. Austerity measures and bailouts reduce debt, but unless there is a way to increase productivity (GDP), the end result will be more debt, more bailout, more austerity etc. etc.

    November 13, 2011 at 4:14 pm | Reply
  11. marty rogers

    problem is manufacturing-these companies fled western countries that dont treat their people like disposable toilet paper and forces them to pay reasonable wages and not release toxic chemicals into rivers. I have a friend from a small village in China , and three NON-SMOKING members of his family have died of lung cancer-the village is within 10 miles an american manufacturing plant.
    the solution is not as difficult: these greedy companies, making record profit, depend on those american and european wages to buy the garbage they produce in China and other countries. STOP BUYING PRODUCTS MADE IN CHINA. Buy american, european made products THIS CHRISTMAS. Stop feeding the greed machine that has killed us. You see how quickly they start making products in our land again if everybody does that. and BTW: instead odf a sweater this year, get somebody a gift card to a local business like massage parlor a beauty salon, a restaurant, whatever. Instead of buying some crappy painting from Walmart find out where the local artists are an buy their painting. They would have us believe we have no power to do anything. I say as consumer, WE HAVE ALL THE POWER. It is us the american consumer that is the holy grail of marketing.

    November 13, 2011 at 4:29 pm | Reply
  12. Scott

    Lack of growth is a symptom, not a cause. The cause is the false sense of growth caused by Keyensian economic policies and fiat currency. When governments create money and provide for the population with it, the people tend to become complacent and they simply stop trying.

    November 13, 2011 at 5:09 pm | Reply
    • BrianLL

      Keynsian policies have nothing whatsoever to do with the FACT that we have finite resources and are running out of the most important one – Oil.
      Another example of how so many people just don't "get it" and cannot, or will not,more likely, fact the truth of the situation. Until that happens, the train wreck will continue in slow motion.

      November 13, 2011 at 5:32 pm | Reply
  13. ANAND

    From last 10 years almost all European countries and US are facing financial crisis.US were on the verge of collapse due to financial crisis. It has already taken 14 trillion dollars Now days 9% US people, 29% Italy people, around 48 % Spain and Greece people are unemployed. In last decade US faced 2 times recession (around 2001 to 2003, 2008 to 2010)I think all capitalist countries has to follow the below points to reduce the unemployment:
    1) Education and medical facilities should be free for all citizens. Government should open new schools, engineering and medical colleges.
    2) They should reduce the military expenditure by half.
    3 ) Government should also take imitative to open public companies to reduce the unemployment. Since in capitalist country all jobs are private jobs and private companies are always thinking about their own profit. They can sack any employee any time.

    November 14, 2011 at 4:40 am | Reply
    • BenBreeg

      Yeah yeah, private bad, public good, we tried this, didn't work. But thanks for the advice, comrade Lenin.

      November 14, 2011 at 10:35 am | Reply
  14. BenBreeg

    The only way is colonization – the natural way for humans. Space colonization doesn't seem to make much sense at this point, but I think colonization of seas and Antarctica is inevitable. Look how little we use out of oceans resources – just oil and fishery... and there is so much more. There is this idea of seasteading – building floating permanent settlements with the use of the existing shipping technology. After colonizing the oceans there will be another direction – deep underground, and after that – when the necessary technology will be at hand – space. Living anywhere besides Earth's land surface will be unnatural for humans, so the overall quality of life will deteriorate, the colonists will be like Eskimo in the Arctic – not flourishing but surviving, but face it – lands are too small for mankind and it has to extend it's environment.
    What do you think?

    November 14, 2011 at 10:31 am | Reply
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    December 14, 2011 at 7:29 pm | Reply
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