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 (366 Responses)
  1. The Whole Truth and Nothing But the Truth

    Europe's problem is zero growth. Zero growth is what you get when politicians promise unsustainable pensions to quasi socialist public sector unions.

    Are you paying attention, California? Washington? Wisconsin? Oregon? Illinois? Ohio? New Jersey? New York? Pennsylvania? Maryland? D.C.?

    October 16, 2011 at 5:16 pm | Reply
    • Badboy

      Right! We are currently in a contraction...the baby boom generation was guite an expansion, there were needs for housing, clothing, food, cars, fuel, etc The housing bubble has burst, and other bubbles are swelling to their bursting points as well....get ready, it will be tougher before it gets better, dont need it (or wont have it) if you are not growing people..We are now in a contraction and abortions, gay marriage, disease, starvation and killing wars will help control population, but the need for more housing and automobiles,(goods and services) will be/has been stifled...this calls out the failing of the liberal policy of pushing debt on down the babies means no more taxpayers, so go have another abortion and celebrate gay marriage, Perry was right about Social security, except he forgot to add the Federal Govt........"PONZAI SCHEMES"

      November 12, 2011 at 8:26 pm | Reply
  2. DoNotWorry

    Our economic model of endless growth is the problem. Endlessly more people and endlessly profligate use of resources. We need a different model. Of course, the powers that be will destroy the system before they admit this does not work. Example: US birth rates are decling. Government response: 50 Million illegal aliens dropping anchor babies and 38 Million legal aliens in 2010 alone. Shift the economy from producing for ourselves to One World where we seem to only produce armaments... leading to world militarism and economic collapse. Our corporations and governments do the same idiocies over and over without a brain in their collective heads.

    October 16, 2011 at 5:18 pm | Reply
    • Appalled

      And if our economy doesn't grow, how do you plan to support your family?

      October 16, 2011 at 6:01 pm | Reply
      • Occupado

        Tax the rich! They've always got the dough.

        All ya gotta do is ask to mow their lawns.

        Bring your vattos.

        October 27, 2011 at 11:24 am |
  3. Henry Miller

    The only way an economy can grow is by reinvestment of surplus over maintenance. If, instead, that surplus is used, or more than used, subsidising non-productive elements of society, growth cannot take place. Since WWII, Europe has been spending its economic surpluses on a large array of social services and neglecting reinvestment, hence its current situation.

    The US, in contrast, didn't seriously start neglecting reinvestment until the sixties, fifteen or twenty years later than Europe, which is why we're in comparatively better shape. But we do need to learn by Europe's mistake and start to roll back social service and re-emphasise reinvestment.

    October 16, 2011 at 5:18 pm | Reply
    • JohnLI

      Yes that's working perfectly Henry. All those American corps. are reinvesting in the country by selling all our jobs to India for 20%. You Sir are lit by a dim bulb.

      October 17, 2011 at 4:01 am | Reply
    • Shannon

      Oh yessssss, you're doing sooooooo much better. Higher real unemployment, more debt, more poverty...say, I forget, which country started the financial crisis in the first place? Hint: it wasn't a European one.

      October 19, 2011 at 4:02 pm | Reply
  4. European dude

    Side comment: I was in Berlin recently, and I did not find the mood any more "gloomy" than usual. I think what Americans don't understand is that constant smiling at strangers (or smiling in general) is NOT the norm in Europe, as it is on the other side of the pond. Also, some people, while polite, are more reserved towards strangers. It is easy for Americans interpret this as a sign that people are unfriendly or depressed.

    October 16, 2011 at 5:20 pm | Reply
    • Jibney Mourland

      European dude is correct. People often do not smile in public...

      October 18, 2011 at 6:13 pm | Reply
      • Occupado

        The world is on the cusp of an Islamo fascist nuclear holocaust, the public sector pension system is collapsing, Europe is going broke and socialism is finally doing the same thing to Western Europe that it did to Eastern Europe.

        What's to smile about?

        October 27, 2011 at 11:22 am |
  5. Jack

    Time to re-think society as one not based on economic growth.

    October 16, 2011 at 5:24 pm | Reply
    • Appalled

      Who is going to support your family?

      October 16, 2011 at 5:59 pm | Reply
      • Occupado

        Why, the rich, of course! The rich can support everybody.

        All ya gotta do is raise their taxes, knock on their door and ask to mow their lawns.

        October 27, 2011 at 11:20 am |
  6. Mike

    Zakaria seems to have overlooked an important fact in his own article. If Germany will be able to grow its economy with a declining population, that means that the standard of living, on average, will be increasing <1% per year. Compare that with the US, where the standard of living has been declining for the past decade. One always needs to put the economic growth of countries on a per capita basis to take account of population changes when comparing them.

    October 16, 2011 at 5:27 pm | Reply
    • Mike

      I meant >1%

      October 16, 2011 at 5:27 pm | Reply
  7. Mike

    Germany has 6% unemployment, in spite of absorbing the former East Germany, lower deficit levels as a % of GDP than the US, a high standard of living with generous social benefits, and 1.5% growth. And they face a crisis???

    October 16, 2011 at 5:29 pm | Reply
  8. skarphace

    In my opinion, the core problem is that more and more wealth has been concentrated in fewer and fewer hands, and these hands are sitting on their wealth instead of investing it in the working class. Trickle-down economics does not work because the rich hoard their assets in times of uncertainty creating economic stagnation. Until the wealthy decide to spend on workers again, growth will not happen.

    October 16, 2011 at 5:32 pm | Reply
  9. aga khan

    christian countries are not having growth because they cannot rob thirld world countries anymore.

    October 16, 2011 at 5:32 pm | Reply
    • The Whole Truth and Nothing But the Truth

      And what is the Third World doing with this newfound peace and prosperity?

      October 16, 2011 at 5:35 pm | Reply
      • Occupado

        Hacking each other's arms off. That's what they're doing.

        October 27, 2011 at 11:18 am |
    • Eli

      What makes you think they ever stopped robbing them? Instead of country based companies exploiting their resources, it is transnationals located in these same "christian countries" that exploit the less economically developed countries and the money then gets added to the country of origin's tax pool (theoretically, not since Reaganomics).

      October 16, 2011 at 5:35 pm | Reply
  10. D7

    Absolutely agree with you Fareed Zakaria.

    October 16, 2011 at 5:34 pm | Reply
  11. Bob

    Perhaps Mr. Zakaria slept through Econ 101, especially the part where Adam Smith explains what is needed for economic growth. In case you forgot as well, they are; a steadily increasing supply of natural resources, steadily improving manufacturing capabilities, steadily increasing markets and, of course, capital. Nineteenth century economists pointed out that the party would be over when the first three went into short supply, which they have. Until we start mining the moon and Mars and open up trade with Tralfalmador and Arcturus there isn't going to be any growth. Oh, Adam Smith did mention one other thing; the government should put down any attempts by the workers to organize and demand higher wages. That would interfere with the growth of capital, you see.

    October 16, 2011 at 5:35 pm | Reply
    • Jibney Mourland

      But are you taking into account what economists after him said?

      October 18, 2011 at 6:20 pm | Reply
      • Occupado

        I dunno. Why don't you tell us what those economists said?

        And when you reply, make sure you differentiate between economists, communists and socialists.

        They're apples and oranges, you know.

        October 27, 2011 at 11:17 am |
  12. us1776

    Europe's core problem is the same as America's:

    FRAUD and CORRUPTION of bankers and power-brokers in governments.


    October 16, 2011 at 5:35 pm | Reply
    • The Whole Truth and Nothing But the Truth

      You forgot the corrupt public sector unions and the quasi socialist politicians who countenance their outrageous pension demands and leave office before the mud hits the fan blades.

      October 16, 2011 at 5:40 pm | Reply
    • alice

      please give me a private letter, to show of their abundant energy to support their citizens . Please keep it right about of everything. Thank you!

      October 16, 2011 at 5:45 pm | Reply
  13. golack

    Access to capital? Really? Corporations are sitting on tons of money. There's no investment because there is no demand. There's no demand because workers have not been sharing in the productivity and profit gains.

    Greece does have it's own problems–corruption and wealthy who don't pay taxes. But unfortunately the only "solutions" are to attack the unemployed.

    The financiers and banks were getting a high rate of return on the Greek debt because there was a chance at default. So yes, they need to loose some money in this crises.

    October 16, 2011 at 5:38 pm | Reply
  14. Ryan

    You are mistaken in that any growth anywhere is even possible. A few pockets here and there is hardly growth. The world's economy is based upon used up finite resources that will never return. Is growth that important? The truth is, in order to grow in other directions beyond oil, auto and housing, the global economy is going to have to contract and find a new path. I don't think it will and we are headed for a total collapse of the global markets.

    October 16, 2011 at 5:40 pm | Reply
  15. R Burns

    Why is this man published? I've never seen an article by Mr Zachariah that connected with anything I know about the US or other western countries. Did I learn all the wrong things in 18 years of educaton, or is Fareed out of touch with the way we think? Nothing he proposes is going to make sense or have an impact until he can speak to those he wishes to "help".

    October 16, 2011 at 5:42 pm | Reply
    • rob

      I believe the problem is in your use of "we".

      October 16, 2011 at 5:48 pm | Reply
  16. Appalled

    Fareed Zakaria is a nice guy, but he is too left-leaning and misguided. He tries too hard to be the Third World version of Tom Friedman, who is also too left-leaning and misguided.

    October 16, 2011 at 5:43 pm | Reply
  17. Ken

    Growth continue to slow for many reasons. And people can argue about aging populations, declining populations, restricitve immigration policies limiting population increases, and other items. And they would be right, that all of these items do contibute in some way to slowing economic growth. But the biggest continuing drag on the econmic engines of Europe is, all of the socilist policies. Remember that many of these policies were forumulated based on mistaken assumptions around population growth. So as population leveled out and starts dropping all of these programs and overly generous benefits start to fail. The solution has been to increases fees and taxes to pump more income into these programs. But that merely "kicks the can" down the road. You eventually reach a point like in Greece where no matter what you do, the programs cannot be sustained, AND, the people themselves sabatoge the system by doing everything they can to avoid paying taxes and fees (The high taxes and fees in Greece have lead to what one politician called Greece's biggest industry after tourism .. lying on taxes). Germany has been lucky. In absorbing East Germany, there was a lot of pent up productivity and growth on that side of the country. As capitalistic rules moved in, this rebuilding of the East and release of energy has driven Germany growth. But as they get closer and closer to on par with the West, this growth fades. They still get 1% growth as repairing the damage of 50+ years of communist rule leaves a lot to repair. But still, even this life line will fail. Look, if you want proof, look to China. As China removes more and more Communist barriers, the economy has growing at unbelievable levels as all that pent up potential, the energy that was reigned in by bizarre and twisted views of humanity and how they should work together, is finally released. Hong Kong has become a seed in China, spreading it's tendrils throughout the nation. Heck they've even introduced local level elections where people in rural areas run for their own councils (without party affiliation), sort of like localized rule. Baby democracy. Communism and Socialism do not work. And people who continue to believe in those programs are the ones standing on corners in the rain and cold crying and whining.

    October 16, 2011 at 5:50 pm | Reply
    • JohnLI

      Nice try Ken. Chinese economy is booming because American corps. will take slave labor (Chinese) if they can get it. The problem is they have been getting away with it. In case you hadn't noticed we live in two different countries. Ever think that Globalism will not work for the U.S.?

      October 17, 2011 at 4:29 am | Reply
  18. JJ

    Great. Suggestions?

    October 16, 2011 at 5:52 pm | Reply
  19. David

    Why doesn't the left ever point out the obvios?
    There is no growth and massive debt because governments have increasingly become more socialist over the last century and spent the people's money on things governments should not be spending money on. It is that simple.

    Governments are taking n more money than ever ( PER PERSON ) yet keep growing debt. What's that tell you? They sped too much on stuff they shouldn't. Governments should not be in the business of redistribution and charity. It accounts for OVER 68% OF ALL spending by western governments.

    Less government, more accountbility, less taxes, less spending. IT IS SIMPLE and has poven to work over and over and over again.

    Yet somehow the leftists have half of you people believing it doesn't work. They got you picketing "rich" people like this is an oligarchy in the 1600's. It is ridiculous and a centuries old TRICK that leftists regimes have used time and time again.

    Wake up people. A corporation that is too big and pwoerful may be dangerous but they are miniscule compared to a government that is too big and powerful.

    October 16, 2011 at 6:01 pm | Reply
    • Appalled

      Correctamundo, David!

      October 16, 2011 at 6:07 pm | Reply
    • the Professor, NJ

      Absolutely David! The government should start by reducing that 1 Trillion dollar/year defense budget. We don't run the danger of invasions from Canada or Mexico. If we remove most of our military bases abroad (hundreds of them), stop toppling other countries' governments and supporting world dictators (Saddam, the Saudi Royal family, the Shah, Marcos, Suharto, Pinochet and many others) not only we will save lots of $ but we may even eliminate the threat of terrorism against.

      October 16, 2011 at 6:35 pm | Reply
      • mdmooser

        I think the world has to stop projecting their own economy's growth and live inside a structure that is not always falsely propped up, real expectations for a real world economy. AND Oh Professor. lack of vision, sure we need to trim down a lot but getting rid of the military bases world wide and home, BIG MISTAKE!

        November 12, 2011 at 6:34 pm |
    • JohnLI

      Yes they are all trying to trick you. Don't forget to take your pills.

      October 17, 2011 at 3:50 am | Reply
    • lolwut?

      This message was brought to you by corporate shill #435687.

      October 17, 2011 at 6:23 am | Reply
  20. london

    Fareed, please shut the f up, you have no clue regarding the Europe or Middle east situations , you just make analysis because you are getting paid by the Jews and CNN who is controlled by Jews. So shut the F up

    October 16, 2011 at 6:04 pm | Reply
  21. Samuel Marglies

    The core cause for no growth is the unremitting attempts at paying off debts which cannot be repaid. Growth cannot come with so much going into rescues and bailouts. That coupled with austerity and taxes insures no or slow growth. Growth cannot happen without adequately addressing and eliminating the debts, combined: the global debt. To do so one must look at the numbers themselves.

    The numbers (the debts) are too large. A million seconds is 11.5 days. A billion seconds is 32 years. A trillion seconds is 32,000 years. Global debt is $42 trillion plus. Attempts to pay it off, or down, perpetuates the problem

    To solve the problem we must understand the numbers and do something else. We must reboot the world economy. Only one thing can do this and that is Global Debt Realignment.

    “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” Albert Einstein

    We must look at the essence and reality of the problem. The complex must be made simple to understand it. It is difficult for some because so much is in the way of their thinking.

    "Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains." Steve Jobs

    The simple fact is that unless we implement Global Debt Realignment the world shall suffer for decades with the yoke of debt on people's and countries' backs. Period.

    October 16, 2011 at 6:07 pm | Reply
  22. Appalled

    The answer is simple. Scrap the public sector pension systems. Flip 'em to 401Ks like the rest of us. That way the public doesn't have to keep paying fat union workers their full salary after they've loafed on the job for 20 years.

    October 16, 2011 at 6:09 pm | Reply
    • Occupado

      Amen, bro!

      October 27, 2011 at 11:14 am | Reply
    • mdmooser

      That might solve 1/1,000,000,000,000, of the problem. The brain in your head must be like a bb rolling around in a trash can. For what the workers you talk about do and what your idea would do is basically NOTHING. The problem is much BIGGER. You will need public employees like police to protect you and others from you and others because with thinking like this you obviously skipped the education teachers were trying to give you from your own ignorance and destroying the quality of life rather than building it will only make matters worse. Simpleton.

      November 12, 2011 at 6:42 pm | Reply
  23. the Professor, NJ

    There are two aspects to the European crisis. One is purely financial and linked to the fact that single European counties can no longer print money. The US financial situation is almost as bad as Italy's (actually Italy is running a much smaller deficit even though has a slightly larger debt than the US) but the US can print money and will never run the risk of defaulting on its debt.
    The other aspect is structural and common to the West. With rare exceptions, the West doesn't produce goods any longer. Manufacturing has moved to the East. The hopes that a pure "service" economy can sustain large western countries at a high standard of living is a fantasy. For the most part, financial services are pure speculations that redistribute the wealth without adding any value to the society. Health care services are only internal to a country and, in countries like the US with a purely private system, are also a tool for redistribution of wealth from the middle class to a small group of individuals (health insurance admins, specialists, hospital CEOs...).
    The hopes that the high-tech industry will remain in the West have also vanished. Asian countries are producing a well trained work force that can do high-tech better and cheaper than the West.
    So what can we do? Not much. The West will continue to decay like the Roman empire did two thousands years ago.

    October 16, 2011 at 6:11 pm | Reply
  24. Robin Crites

    If you have a declining population as Germany has, why do they need to grow. Why do people need to consume an increasing amount of goods each year. They certainly don't need to eat increasing amounts of food. Why would they need more cars per person, or more television sets or more miles of road per person. If the population stabilizes, the growth should be stabilize to match.

    October 16, 2011 at 6:12 pm | Reply
    • Ely

      You raise the critical question: can growth resolve the economic and employment issues in the US? The answer is clearly no. Even with technology advances, there is but so much the Earth can yield per capita. The GDP in the US has been growing since the first quarter of 2009, yet net jobs have been declining in the same period. Clearly, growth is not solving the problems. Capitalism as we know it has failed, a new system has to be found.

      October 16, 2011 at 6:56 pm | Reply
  25. KS

    Or the problem has been countries like Germany and France let their economy "grow" by ignoring the agreed deficit in the Maastricht Treaty and got unpunished. Germany had set a very serious bad example.

    October 16, 2011 at 6:15 pm | Reply
  26. stormy123

    Fareed, you need to put this in perspective:
    European Union has an annual GDP of 16 trillion. Arab League, only 1.9 trillion. India, with over a billion people only 2.4 trillion. And China about 9 trillion. The United States with only 300 million people and 1/4 China's population has a GDP of $14.5 Trillion! WOW......Europe and America combined DWARF all of the rest of the world combined! So, The United States and Europe may have troubles and some debt, but we are and will for many years be the dominant driver of not only innovation and commerce and innovation, but money and per capita income......I worry more for Arab countries when oil dries up and China when they cant afford to feed their people.

    October 16, 2011 at 6:16 pm | Reply
    • Amit-Atlanta-USA

      I only now realized that actually the pic. in the article sums up whatever I have been talking about Europe's demographic time bomb due to hordes of unadaptable Muslims gatecrashing there, and Mr.Zakaria's own bias (& hidden Agenda!) in their favor.

      October 19, 2011 at 4:18 pm | Reply
  27. reader10

    No borders my friend.Legal and illegal imigrants from easter Europe,Afrika and middle East flooding West Europe.That my dear Fareed is in my opinion the problem.

    October 16, 2011 at 6:18 pm | Reply
    • Appalled

      My brother-in-law is from the UK and he would agree with you.

      October 16, 2011 at 6:26 pm | Reply
    • Occupado

      This is true. My brother in law is from the UK, too. He says it's all gone because of refugees from Sub Saharan Africa.

      October 27, 2011 at 11:13 am | Reply
  28. judith

    "And at what wage levels? " you ask that question like it's a grim reality that can't be kicked down the road....that the bloated worker wage must get real to insure growth? but how does one compete with 51 cents at hour which apple's sub is paying workers at foxcom? and they're moving it out further into the boonies to reduce that? are we all to work at that? or what about the north koreans slaves who will be paid nothing under these new trade deals with South Korea. is that too much, Fareed?

    October 16, 2011 at 6:25 pm | Reply
  29. Ignominious

    Tax the rich now! Anyone who isn't employed should be paid $20 an hour so they can live, too! Take the streets back from the capitalist piggies rolling in the dirt! Everyone deserves a government pension.


    October 16, 2011 at 6:30 pm | Reply
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