Is the spanish miracle at an end? After 11 years of buoyant growth, Spain's standard of living has soared, unemployment has plunged, and the country's biggest companies, from BBVA to Telefónica, are playing an increasingly active role on the international stage. But cracks in the economy are showing. Although growth is expected to be around 3% this year, foreign direct investment is diving, the current account deficit is ballooning, inflation is on the rise, and productivity growth lags behind the rest of the core 15 members of the European Union. And from 2007 on, the billions of dollars in net aid Spain receives every year from the EU -- equivalent to 1% of annual gross domestic product -- will begin to dry up. That money will go instead to the new, poorer EU members from Eastern Europe. By 2013, Spain is expected to be a net contributor to EU aid funds. The country will then have to find other ways to finance investments in schools and infrastructure -- such as issuing debt or raising taxes -- or reduce spending.
Germany stops:
Looking back at the 1960s and 1970s, when I grew up in Germany, one of the most striking things was that everyone talked about work and money. The country was infuriatingly materialistic. The old West Germany felt more like an economy than a country. It used to have a proper currency, the Deutschmark, but it lacked a proper political capital. At a time when the British believed in incomes policies, capital controls and state ownership, Germany was as laissez-faire an economy as you could find anywhere in Europe. The Germans were the Americans of Europe, as a friend remarked at the time. Everyone was brimming with confidence and the superiority that comes with the belief that you are running the world’s most superior economy. The 1970s were the heyday of Germany’s social market economy, the economic equivalent of having your cake and eating it.
Unification was supposed to make Germany even stronger. The opposite happened. The country’s political leadership mismanaged unification through forcing monetary union too early, at the wrong exchange rate, and on the basis of West Germany’s high social costs and bureaucratic rules. When I returned to Germany in the 1990s, what surprised me most was not the poor performance of the economy — this I expected. I was most shocked by the extraordinary loss of self-confidence among the political and business elites, combined with a poisonous cocktail of the three big As: anti-Americanism, anti-Semitism and anti-capitalism.
EU awaits US bailout:
A hastily assembled special negotiation of the Kyoto Protocol begins this week in Bonn, Germany, to try and define a future for a climate-change treaty that runs for five years (2008?2012) but already appears dead. This comes on the heels of European Environment Commissioner Stavros Dimas coming to Washington with the message that Europe is leading on climate change and America could cheaply comply. The public deserves some candor about Kyoto's, and Europe's, actual failure and the radical changes necessary if Europe sincerely believes that American involvement is "critical" in any next steps. What we are witnessing instead is a growing European Union effort for a U.S. bailout from the political corner into which its leaders have painted themselves.
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