Mon Jul 2nd, 2007 at 05:15:10 AM EST
Alex Harrowell on A Fistful of Euros summarises some optimism about the German and Italian economies on Eurozone Watch
For a start, Sebastian Dullein argues that a comparison of Germany today and the US after the early 90s recession shows that Germany might be on the brink of a productivity surge. Dullein argues that labour productivity growth at the moment is being depressed by the re-absorption of the long-term unemployed, which also happened in the US in the early 90s.[...]
He also criticises Wolfgang Munchau for arguing (in essence) that there had been no structural reforms that accounted for productivity growth, and therefore that there was no growth. At this, I think I heard J.K. Galbraith’s ghost chuckle into his martini - it is indeed a fine example of all that is wrong with economics as a discipline that one can argue that we must all reform because there is a crisis, the evidence of that crisis being that one’s reforms have not been adopted.
An alternative argument would be that there was not all that much wrong with German firms in the first place. It is suggested that R&D spending is too low, but Dullein argues that it’s picking up. And anyway, their products can’t be that bad, as the rest of the world wants to buy German exports more than anything else. He also notes that there has been a wave of capital investment since 2002.
How can their economy be improving if they haven't made the reforms that were being called for? It's unpossible! And Italy is apparently benefiting from the upturn in Germany.