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. Occupado

    Europe's lack of growth can be tied directly to its unsustainable public sector pension obligations. They've taxed the life out of their private sector. Now they're broke.

    The problem with socialism is that you eventually run out of other people's money.

    Are you paying attention, Mr. Obama? (Nope.)

    October 27, 2011 at 10:15 am | Reply
  2. Occupado

    Jobs will return to the West when the Chinese workers wake up and realize they've been duped. The workers' paradise is, as it has always been, a communist facade. If anyone has the right to occupy the realms of those who are in control, it is the Chinese workers who are forced to take jobs hundreds of miles from their homes but are prohibited from moving their families to those towns.

    But then again, I guess they all remember Tianamen Square.

    Funny how that works.

    October 27, 2011 at 11:33 am | Reply
  3. Karur

    Sure Fareed,the problem with Europe is the lack of growth. But what will generate growth? Domestic consumption cannot be the answer. Hence growth will come mainly from exports and all countires, except Germany, cannot produce enough exports. Countries in Asia and Africa are relying on local know-how and Europe has very little of raw materials to export. The way North America deals with the prblem is to increase consumption through new immigrants. This cannot work in Europe, where immigration is a bad word. Too much feather-bedding has created a flase lifestyle, hard to sustain. Time for corrective action!

    November 10, 2011 at 6:50 pm | Reply
  4. Willa45

    It appears that for globalization to take hold, the US must drastically reduce its standard of living, so wages can be slashed and costs can be lowered to compete with emerging economies. That's good for business, bad for employees. It's not that the US doesn't have smart, skilled workers....it's that they need to be paid way less. Most Americans however, have always earned enough to maintain a relatively high standard of living. Post globalization, most Americans can no longer afford their most essential necessities, and we still can't compete. Considering that our government is beholden to a bunch of TransNational Corporations and the World Bank, I fail to appreciate the benefit for the rest of us. So, how is globalization working for you?

    November 10, 2011 at 7:52 pm | Reply
  5. ZQX

    The growth model is out mode for the modern world. The world is finite and bounded and becoming more so each day. The assumptions inherent in the growth model are no longer valid.

    The other problem with the growth model is that it encourages planning to a too optimistic scenario. And when expectations are not met, it is disaster. We see it in the US and in the EU.

    Folks say, well the EU problem could come to the US. It already has.

    Who is the master of sustainable economics. Try Native Americans. In and of nature. Not dominion over nature.

    Space ship earth. – Walt Disney.

    What did the natives say? oh yeah, " We hold these truths to be self evident'

    The wisdom of big oil and big coal is the wisdom of fools. Let us gravitate towards a new way of thinking that acknowledges the reality of our situation.

    I want to have a party to celebrate the kinship of the world, with 7 billion of my closest friends.

    November 10, 2011 at 9:42 pm | Reply
  6. jdoe

    Growth is nothing if it does not translate into a better standard of living and real benefits for regular people. All the growth and increase in productivity over decades have done nothing for Americans. People work longer hours than ever with hardly any time off. Where a one-earner family used to be fine, now two incomes barely make ends meet. Health care costs have skyrocketed while benefits are cut back. Same with education. In terms of real wealth Americans are going backward.

    A real benefit from productivity would be more free time. Time to spend with or visit family and friends, travel, or simply engage in activities outside work. Sadly most Americans have less time outside work than ever before.

    November 10, 2011 at 10:01 pm | Reply
    • OneOfTheSheep

      "All the growth and increase in productivity over decades have done nothing for Americans." That has to be the most ludicrous, myopic statement I have seen in years.

      Every day you and I do things that to our parents and grandparents were genuinely impossible. Americans, including those living below the "poverty line", have unlimited pure, clean water, sanitation, food choices, clothing, heat, cooling, transportation, music and entertainment far, far in excess of that of kings and queens a few hundred years ago. Life today in a modern city is one of comparative bounty incomprehensible twenty years ago.

      Our future is even more promising. The personal computer now available to the masses has replaced the Oracle of old as a shortcut to wisdom for the discerning. Man has sequenced not only the human genome, but that of extinct animals. The first human to live to be 1000 years old may already have been born! People are surviving cancers, etc. into old age that would have killed them 20 years ago.

      People have conveniently forgotten that for everyone living "above average" in the world there must be those living "below average". Not fair? Life isn't fair. Nobody promised fair. Nobody can deliver "fair".

      November 11, 2011 at 3:24 am | Reply
  7. Cantmakethisup

    Imports kill growth, no factories kill growth, investors sitting at the computer looking at their market financial gains kill growth. Wake up, smell the roses, go to work, make something, pay good wages, don't be greedy, regulate excesses, have some empathy, be a good neighbor and lets grow toghether.

    November 10, 2011 at 11:18 pm | Reply
  8. helenecha

    Europe's real problem is that euro zone has got a motorcade there instead of a train.

    November 11, 2011 at 2:39 am | Reply
  9. Eric

    Lack of growth is only a problem because the economy is dependent on growth. Trying to grow the economy is one possible, albeit temporary way to address the problem, since perpetual growth on a finite planet is physically impossible. The alternative is to make the economy independent of growth. http://steadystate.org/

    November 11, 2011 at 5:51 am | Reply
  10. m.s.mohamed ansari

    RUSH SAVE GLOBAL ECONOMIC TSUNAMI

    M.S.Mohamed Ansari 13 April 2009

    All press and Media Arabs leader and G20 leader and CONGRESS under control
    By A TO Z + 8. QUEEN + 8
    Royal wedding cost. And security force 10 generation total $ 57 trillion
    Each every politician rolling 8 years only just like chess board Game
    But queen family enjoying 10 generation

    GLOBAL ECONOMIC FALL REASON WAR. Improve Economy only 6 points. Peace, prayer
    Liberty, Unity, friendly And simplicity

    I am also happy to kill osma bin laden
    Turing point of global economy. Islam not allowed to be Terrorist and Terrorist people are not a Muslim
    1. Please avoid war. Day by Day war cost increase $ 3.5 trillion
    2. Global economy and food price every Day increase
    3. International job less Y. All businessmen effected business.
    4. Global financial crisis every CNC manufacture. New technology energy product Effected FDI investors.
    5. Every Day OPEC Oil Price Increase
    6. World poverty problem
    7. Each every single man Effected
    8. Ignore future Death million of already Death
    9. Million of People Wounded
    10. Global environment climate will be change this will lead Global Agriculture problem

    JUSTICE IS IN PERIL. SAVIOUR OF INTERNATIONAL JUSTICE ALONE CAN PROTECT HUMANITY

    From. Mr.M.S.Mohamed Ansari,
    154, Angappa Naicken Street,
    Chennai – 600 001.
    Tamil Nadu,
    INDIA..
    To , The Hon’ble Chief Justice,
    The Supreme Court,
    United States of America,
    Washington, D.C.
    Fax no: 213.547.8080
    Dear Sir,
    Sub: Prosecution of previous President Mr. George W.Bush, for violation of International Code of Conduct.
    Mr. George W.Bush, the previous President of United States of America, initiated a war against IRAQ, without obtaining the previous sanction of United Nations Organization (UNO) on the pretext of having nuclear weapons, even though the then IRAQ government openly exhibited to the whole world that it has no nuclear weapons.
    According to the CNN WORLD report, in the war 6, 75,000 civilians killed, 7500 troops of USA and its allied forces killed 3 25 000 people wounded and $ 3.5 Trillion Dollar spent for the war. This spending of $ 3.5 Trillion Dollar is the main cause of action for the present economic crises prevailing all over the world.
    After winning the war against IRAQ, the United States of America’s President Mr. George W.Bush, also admitted the same fact, and he openly stated that the Intelligence agency misguided him.
    Later on, even the United Nations Organization (UNO) also certified that the IRAQ has no nuclear weapons.
    Then it is the bounded duty of the United States of America and its allied forces to withdraw from IRAQ.
    But instead of withdrawing from IRAQ, the United States of America and its allied forces formed a government in IRAQ, under their control and administered the entire IRAQ, and its peoples.
    This indicates a clear violation of duty by the President of United States of America Mr. George W.Bush and also a clear case of violation of the International Code of Conduct for UNO members.
    Thus Mr. George W.Bush attracts prosecution for the above said offence.
    Thus I hereby pray this Hon’ble Court initiate criminal proceedings against Mr. George W. Bush, and give him maximum punishment for
    a) initiating the war against the IRAQ
    b) killing its innocent IRAQI peoples
    c) Killing troops of USA and allied forces and
    d) The present economic crises.
    e) 3 25 000 civilian and coalition 39 000 wounded
    Dated on this day of 13th day of April, 2009.
    Yours truly, (M.S.MOHAMED ANSARI)
    COPY TO
    The Chief Justice, the International Court of Justice, The Hague, Netherlands.
    The Secretary General United Nations Organization
    The Chief Justice, the Supreme Court, IRAQ.
    His Excellency Mr.Barack Obama, the President of United States of America, White House, Washington D.C.

    November 11, 2011 at 6:35 am | Reply
    • Paul

      You are a nut.

      November 12, 2011 at 6:26 pm | Reply
  11. 2bits

    A warning to America to get it's act together. Listening Congress? It's time to make Corporations pay a flat 27% tax with NO tax loopholes or any tax breaks for any company for any reason. This will raise taxes immediately by more than $250 billion a year and make a sizeable dent in the deficits.

    November 11, 2011 at 7:52 am | Reply
  12. CM

    When did economic "growth" become the be-all, end-all of human existence? Can we not live meaningful, purposeful lives without someone injecting capital or pocketing dividends? Did it ever occur to anyone that eternal growth is impossible? No country/business/person/etc can always grow more all the time in a world of finite resources.

    November 11, 2011 at 10:16 am | Reply
  13. Goodguy1

    You are such a wise man ZAK. Growth will only end up destroying the earth. A nice humble 1% growth or a nice zero growth if people are employed will keep the earth revolving for all; provided profits are shared. You feel into this mental thinking that growth is a good thing. The oceans are fished out, the land is being destroyed for apartment complexes. What the hell happened to common sense thinking? Name a Scientist that thinks that continued economic growth will result in better living here on earth? Answer: 0

    November 11, 2011 at 10:52 am | Reply
  14. Rick McDaniel

    Europe's problem s the same problem as the US. They allowed all of their global corporations to send their manufacturing to China.

    Now, the entire free world, has SOLD OUT, to China.

    November 11, 2011 at 12:35 pm | Reply
  15. Ross

    This idea that growth will continue indefinitely is a cancer to our society. We spend and plan like growth can continue forever and end up with debts missed expectations and thousands of students with huge loans and no jobs. It is time we get realistic and realize that growth can happen sometimes but is not the norm. Otherwise we will run our society into total destruction. This idea of constant growth fueled the Chinese imports, housing bubble, and medical care debacle. It will soon lead to unchecked infaltion because we want so badly to get back to where we were in the bubble that we will print money feverishly. Come on people, it is time fro austerity and real expectations.

    November 11, 2011 at 12:57 pm | Reply
  16. Ronald W

    IF you spend more than you produce............................................YOU WILL EVENTUALLY GO BROKE!!!!

    November 11, 2011 at 3:23 pm | Reply
  17. bfred

    From what I've read elsewhere it's not just that Greece needs growth to cover its obligations; it's that it needs to start collecting taxes. Inforcement of income tax collection is effectively zero and Greeks treat tax evasion as a national pastime. Won't cover the whole need, but it's certainly a start.

    November 11, 2011 at 3:36 pm | Reply
  18. janelle

    Sounds to me like Fareed is decrying government controlled economies. How very Conservative of a self proclaimed Liberal!

    November 11, 2011 at 3:50 pm | Reply
  19. fixingstupid

    The Euro's undoing is because the countries have not lived up to the spending/ borrowing limits that were established. There was no punishment when they did not meet the requirements.

    The spent and spent and spent and now they are running out of people to bail them out.

    November 11, 2011 at 4:04 pm | Reply
  20. Rick

    Isnt it just great watching to world come apart? I think ill just shut everthing off....

    November 11, 2011 at 4:11 pm | Reply
  21. jdalco

    Face it folks, the real problem here is socialism. . . they give away the store. Someone has to pay for all this and now the bill is due. . . . too bad the left here wants to do the same thing. . . .

    November 11, 2011 at 4:56 pm | Reply
  22. malthusian

    you can read Malthus - that will explain the problem. We have too-may head-count - guess that 1-2 billion people is a
    sustainable figure.

    but this topic is taboo because:
    – against religious principles (whatever that might be ???) – the fact is that Christianity and Islam are both agains, for the Hinduist – not sure , but the fact is that they grow the fastest anyway.
    – political correctness B.S

    the way to solve it is :
    1) the nature will solve it by-itself (wars, diseases, hunger, thirst , ... ).
    2) dictatorships

    Because of political correctness - option 2) is not "verbally" acceptable (which does not mean it is not what is going to happen !). Option 1) is automatic - and works by-itself.

    November 11, 2011 at 5:40 pm | Reply
    • Grant

      Hey Malthus,

      I suggest you check out the website for VHEMT. This is the moral answer to decreasing our population.

      November 11, 2011 at 8:35 pm | Reply
  23. Dan

    Of course they are going to have low growth. Europeans (and Americans, Canadians, etc) have not been having enough kids to replace deaths. And there has not been enough immigration to make up the deficit. So of course there will be low growth. DUH!.

    We need to concentrate in growth in GDP per person, not total GDP or GNP. With a declining native population, low growth is the future. Get used to it.

    November 11, 2011 at 5:42 pm | Reply
  24. Dude

    Hey Fareed,
    You must be a Journalism major because "lack of growth" is a result, not a cause. Europe's problem is the lack of growth caused by their "Socialist Welfare State" economy.

    November 11, 2011 at 6:01 pm | Reply
  25. SixDegrees

    Europe's real problem is that it's full of Europeans. They are incapable of working together toward a common goal. Centuries of inbreeding has turned them into a continent of shiftless backstabbers.

    November 11, 2011 at 6:28 pm | Reply
  26. ad

    wake up america!!!! results of socialism!!!

    November 11, 2011 at 9:22 pm | Reply
    • BostonDawg

      Exactly and our president is running for president with the slogan I WANT US TO BE GREECE.....

      November 12, 2011 at 5:18 pm | Reply
  27. bennett hall

    The elephant in the room is indeed 'Growth', but it is not the panacea the author envisions either. A solution based on what is essentially 'infinite growth' can no longer work on a finite planet. We are not just approaching peak oil, but also peak population, peak everything, and if we do not reverse this trend, the planet that sustains us will eventually extinguish us one way or another. The question should be how do reinvent the monetary system so that it functions in a negative growth direction, one that allows us to preserve what is left of the plant's natural resources, vis a vie, that future generations, assuming they exist in three hundred years, may be celebrating us for NOT consuming every last drop of oil. There is lot to consider and the old assumptions no longer work is perhaps a key point of OWS. The time is now to reinvent what it means to be human and how we related to each other an planet we live in.

    November 12, 2011 at 11:38 am | Reply
  28. barack o'soros

    europes real problem?

    muslims

    November 12, 2011 at 4:13 pm | Reply
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