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. Don Longfellow

    Zakaria is a denier. Europe's problem is not debt. That's the symptom. Their problem is that they think government is the solution to all that ails people. As Margaret Thatcher said, the problem with socialism is that eventually you run out of other people's money. That time has come for Europe and the US isn't far behind.

    November 13, 2011 at 12:30 am | Reply
  2. Brian H

    Humanity is damned if they do and damned if they don't. If we don't control population the world's environment will just continually degrade and food supplies will never adequately support the human race. Capitalism seems to require increased population in order to have increased productivity and GNP. How the hell do we do both?

    Somehow we have to figure out how to live on this planet with continued diminishing resources. How do we do that and continue to feed the capitalist machine? I've always thought that zero population growth was the key to not trashing the earth. NOW it seems that our economies can't survive a plateau in population, much less a decline.

    How do these concepts get reconciled?

    November 13, 2011 at 1:21 am | Reply
    • Jack Luminous

      They can't after a certain point. The only way is to re-evaluate capitalism, economics, finance, and other aspects of this thing called money.

      November 13, 2011 at 2:02 am | Reply
  3. Jordan

    Aren't we a little tired of Fareed's banter? This guy has an angry hidden agenda that shines through in every story he covers.

    November 13, 2011 at 1:49 am | Reply
  4. Jack Luminous

    if you don't care for his 'banter' then why the hell are you watching much less reading it? Go back to Fox News.

    November 13, 2011 at 2:03 am | Reply
  5. Ted Smythe

    Is Democracy just a better way of hiding corruption? This money problem is getting to be quite disgusting. Are there no boundaries to our greed? Millions died in WWI and WWII so that we have the freedom to steal from each other? Our leadership today is no better than the inbread monarchies that ruled 100 years ago. Absolutely DISGUSTING . . . and the muslims are at the gates!

    November 13, 2011 at 3:18 am | Reply
  6. JJ

    Read Sharang below, which I am replying to,
    Sharang says that the huge debt is from Social Programs and lack of Taxes on the rich. Though cutting Social programs and putting more Taxes on the rich, would solve the immediate problems, long term we are still looking at more unemployment, less wealth and shortages of resources. Population growth touches every part of what we know as the good life.

    More Food – requires more fertilizer, more land tilled, more distribution, more water, each is based on more energy. Not only will we need new sources of energy to replace the old, but we will need more for the population growth.

    More People and Housing – requires more land, more waste disposal, more water, more energy for; lighting, heating / cooling and moving products and people. These people will also want to consume more white goods, appliances along with everything else.

    Yes we can produce more food but energy and water will be the real problems.

    As for the unemployed, we like the cheap Mexican labor, but we hate to think that they consume any public / social services. In China, they made the office workers go to the fields to help pick, I would love to see that happen in the USA, even just for a day. Maybe then, the true cost of food would be realized. The fact is, a vibrant economy needs an excess of workers (unemployed) and they have to be sustained in some manner.
    On the farm, I could give jobs to 50 people, as long as they didn't need to make a living wage. People complain each time the price of food goes up, so where is the extra money to come from to pay these farm laborers a livable wage? Instead we become more efficient and hire fewer people, the trend of all manufacturing.

    Lastly, why has the US and EU economies done so well in the past? A quick look around will tell you that it is all based on cheap energy.... and growing populations wanting our products. As they start to make their own products, we will find it harder and harder to compete for the energy, water, materials and labor force. Why are we in debt now, we lived the good life on credit. The banks made it available and we were suckered into thinking we could live the good life and pay for it later. It is a collective society problem, not just the banks. Education of the masses will be most important to solve the issues. Without that, we will have to rely on strong rulers to tell us what to do, like a bunch of sheep.
    Dr. jmw: It seems to me that most of the comments on this article have one thing in common: "Population Growth". The readers think that population growth is the major (or only) issue for all this economic crisis.
    While it maybe considered an issue to some extent, the major PROBLEM in European Union and USA is "FREE Social Security/Government benefits".. Governments spend a MAJOR amount from their budget on unemployment benefits, healthcare, social benefits (which goes to bums). Even if the govt. doesn't have enough money to provide these benefits,it take LOAN from other countries and increase their Debt. Hence, the DEBT crisis in EU and USA.

    A solution to the debt problem is to reduce all the SOCIAL BENEFITS and increase TAX on rich people. Peace."

    November 13, 2011 at 6:31 am | Reply
  7. Vijay Menon

    With the passing of each day we are adding to the coplexity of what we do, how we live. Technological advances do make life more "cool" to live, but eventually less affordable. It will be an unpopular idea to suggest looking critically at how we do things and ask ourselves whether we can live on less. That will definitely be painful, but there will be more left behind for the generations to come.

    November 13, 2011 at 6:36 am | Reply
  8. MollyBee

    Fareed, I love ya' but this article says absolutely nothing.

    November 13, 2011 at 7:37 am | Reply
  9. james

    The existing economic, business and tax policies of Europe and north america is heavily depends upon the continuous growth, that is not sustainable on the long run. Countries must protect their economies from outside influence and forget about the globalization.Globalization is nothing more than socialism developed by the greedy big business, the losers are the middle class of the developed wold.

    November 13, 2011 at 8:15 am | Reply
  10. ken845

    Start producing cars that run on olive oil. Problem solved.

    November 13, 2011 at 8:34 am | Reply
    • unretired05

      Good-bye Martinis.

      November 13, 2011 at 8:49 am | Reply
  11. Yuri

    Shrink the World population. Tax those who have more than 1 kid.

    November 13, 2011 at 8:35 am | Reply
  12. faberm

    I don't know that "growth" per se is needed. I don't think Switzerland has growth and it is very healthy. Europe needs financial incentive and reward. It has ground to a halt because it is crippled by socialism and perceived "give aways". I spent part of the summer and everyone I met raved about "free medical care". I would stop them and ask, "Nothing is free. Who pays for this?" They are so far removed from reality that they don't realize they themselves pay for it in a reduced standard of living. Government is huge in each country. Taxes are beyond imagination (Just look at gasoline at $10-12 per gallon). Folks....this is not a mystery. It is predictable human behavior. The USA under the current government is desperate to push us into a similar system. I looked at buying a house in the UK last year and decided against it because of the regulations required just to put a new bathroom in a home. It is NUTS! No wonder it's grinding to a halt. It needs to do so.

    November 13, 2011 at 8:43 am | Reply
  13. dscot

    It's not technology or demography. It's all globalization. Big business sold this to Western countries through their advertizing and Congressional lackies. Actually, a slow, measured transition to globablization is probably a good idea. But we rushed headlong, and while we enjoyed the cheap products from countries whose workers earn unacceptably low wages by Western standards, we were losing our manufacturing base–our ability to physically produce things. We kidded ourselves that we were transitioning to an informational society as the third world countries were taking up the manufacturing mantel. Yeah, and now the main paper we are pushing are IOUs to the countries doing the manufacturing.

    The answer to the problem is to develop a manufacturing model to compete with China. China has two great advantages - a massive peasant population willing to work for very low wages, and an authoritarian regime that can pave the way for its businesses (e.g., relocating a neighborhood to allow for a new business building). China is also smart politically by spending massive amounts on its infrastructure. The low wage workers get to enjoy new roads and parks and facilities. Our low wage workers get nothing but their wages, because the anti-government, "free market" fallacy we have bought into in America discourages infrastructure spending.

    So to compete with China we either have to impose tarriffs or find low wage workers, and we have to get smart about investing in America. But one way or another we must buy products from ourselves again so the profits stay here rather than move to China. Tarriffs come with a new set of problems, and American workers won't work for China wages because they can vote for minimum wage limits. So the ultimate solution may be to import low wage workers. We do this in a backhanded way with our illegal Mexican immigrants, but we are stifled from making it profitable by our politics. It would probably be possible to create a win-win solution for Americans and foreign born workers, but we have to first properly identify our problem. Politically, I'm not sure we can do that.

    The only other solution is to invent something so cool that everyone in the world wants it. Like a new energy source. Unfortunately, our oil companies own a majority share of Congress and are stopping all movement on that front.

    November 13, 2011 at 8:48 am | Reply
    • 2bits

      Cold hard facts. Welcome to Pottersville, USA. Or maybe that's Pottersville, Anywhere but China.

      November 13, 2011 at 9:56 am | Reply
  14. Willa45

    It's people in poor underdeveloped countries and ghettos that seem to reproduce more. Conversely, populations among educated, affluent people are not as prolific because most of them wait until they can afford to get married and start families. In countries where there is ample access to higher education, the people themselves are better equipped to manage their resources more responsibly. They are also more careful when it comes to planning life choices such as marriage, children etc. Perhaps the key to human survival is to have less ignorant people in the world. Universal access to excellent education should be the hallmark of every responsible government. There are no stupid people in this world, only uneducated ones.

    November 13, 2011 at 8:54 am | Reply
  15. Arbour

    The word 'growth" implies an outcome of certain activities and personal behaviors. Outcome are not the root problems. So this article basically says nothing. Why not look at countries that has decent growth and not in a pile of debt. See how the people's mindsets and behaviors (work ethics) are different and how the government's policies are different. If we look at things that way, it's not hard to see why certain countries are doing well why others are at the brink of bankruptcy. For example, most Asians are personal achievement driven. Personal responsibilities are the rule, government aids or inteference are the exceptions, not the rule. Without honestly examining themselves on a personal level, there is no solution in Europe.

    November 13, 2011 at 8:56 am | Reply
  16. Cassandra Chu

    The Germans are the only Europeans who work hard. The Italians and Greeks are lazy. Combining the two types of peoples and cultures was a mistake. After living in Europe for 13 years and traveling extensively, I can say with assurance that: THE GREEKS AND ITALIANS WILL NEVER, NEVER, NEVER WORK AS HARD AS THE GERMANS. It's simply not in their DNA.

    November 13, 2011 at 9:47 am | Reply
  17. George

    The answer is for people to require less "things", but of a much better quality, requiring more man hours to design, engineer, produce, at higher wages, costing more, but lasting longer. That philosophy coupled with massive birth control steps aimed at eventually reducing the world count by 50%, and upgraded agricultural practices worldwide, will save the planet for those three and a half billion people who will live splendid lives.

    November 13, 2011 at 10:19 am | Reply
  18. Joey Webster

    Sclerotic? Are you kidding me? Western economies have become sclerotic? Where did you pull that out of?

    November 13, 2011 at 10:39 am | Reply
  19. barack o'soros

    europes problem? thats easy...islam

    November 13, 2011 at 10:57 am | Reply
  20. BRG

    Infinate growth never made sense much as growth based on an ever increasing population never made sense (although cities still talk about needing to expand into farm land). Much like turning fields into concrete and polluting air, land and sea made no sense all of these things one day would lead to an end point or even worse a die off point. Oil (and other carbons) has allowed this massive expansion the question is what happens when it goes away.
    Listen to these commercials that talk about the massive amounts of natural gas we have more than oil in the middle east. Then think when they say we have enough for 100 years! 100 years isn't that long maybe we should have started planning a long time ago.
    With emerging countries ramping up it only means less available resources for those countries that had access for all of those years before

    November 13, 2011 at 11:09 am | Reply
  21. Bruce

    Our economies are biased on consumption. When people get older, they consume less because they have less need to consume. They also produce less because they drop out of the work force when they retire. These are major drivers of decline in economic growth. We need a new economic model that provides for growth but yet is not hampered by constancy. I don't now what that is but an ever expanding global population is not sustainable. Neither is ever expanding consumption. We have a serious problem and our current economic malaise is the result of it.

    November 13, 2011 at 11:46 am | Reply
  22. Marc

    Ohhh!! Now I see; it's not that they spend too much, they just don't have enough economic growth!! How simple!! Now, go out and apply that yourself. Just spend as much as you like and tell your employer that you need more income growth! Give me a break!!!

    November 13, 2011 at 12:03 pm | Reply
  23. CanOnTo

    When I hear "growth", I cringe. If we were on a space ship with a carrying capacity of 1,000 people travelling on a journey for 1,000 years, what economic principles would we adopt on such a journey? Growth? I don't think so. The problem of the world economy is not the lack of growth, but the inability of the political leaders to come up with and implement viable policies that would maintain a healthy economy in the zero-growth environment. Because what is Earth but a huge space ship with limited resources and limited carrying capacity?

    November 13, 2011 at 12:08 pm | Reply
  24. Doug Erickson

    I am afraid Zakaria is stuck in the past with his views that are predicated on the model that concentrates political power and wealth with the few while continuously making the working people sacrifice policitcally and economically to sustain that very unjust system.

    November 13, 2011 at 12:11 pm | Reply
  25. Remford

    Sure Fareed.

    People aren't merely "overweight". They're undertall. Oy.

    November 13, 2011 at 12:16 pm | Reply
  26. J

    Fareed never hesitates to make a blathering fool out of himself does he?

    November 13, 2011 at 12:38 pm | Reply
  27. ddblah

    Yes, good comment. Growth is the key.

    November 13, 2011 at 1:00 pm | Reply
  28. YounanMarketingAndManagementAssociatesInc,Int'l Intst'r

    did you lift that last and other comments fareed gunman dealer zakaria. one of important history making planning and sacred interpretation crime fighting portrayals
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    November 13, 2011 at 1:04 pm | Reply
  29. Robert

    A lot of their problem is too much islam and its growing.........

    November 13, 2011 at 1:16 pm | Reply
  30. Rolph

    Better healthcare – higher taxes – less consumption – more exercise – controlled population – better care of the environment – and, oh yes .... Soilent Green
    Problem solved !
    Capitalism running wild is not the answer
    The Duggars should not be congratulated but taxed at 90% for the use of environmental resources.

    November 13, 2011 at 1:20 pm | Reply
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