A (positive) German shock?

Eurozone Watch has two articles about Germany and Italy that offer support for an optimistic view of the European economy. 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 quotes a figure of 7.6 per cent for productivity change (per employee, rather than per hour worked) in the metalworking industries (in Germany, a term that covers most of the industrial sector), which is positively stellar – after all, the US didn’t pass 2 per cent per-hour until 1998, well into the boom.

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.

This possible German shock is already reverberating interestingly. Italy, for example, is experiencing better economic times, with growth picking up and strong industrial order books – especially on orders from France and Germany for capital goods. The growth is despite an increase in the tax take, with the result that the government is likely to have a chunk of change on hand. The OECD and the EU Commission would rather like to see that used to cut the monster public debt, still running at over 100 per cent of GDP. But the political situation might make that unlikely.

That might be the good news, though. When wasn’t the Italian government up to its eyes in debt? And it’s almost traditional that political turmoil in Italy is accompanied by good economic news. The difficult bit, though, is that Italian inflation is running somewhat slower than German – this implies, of course, an improvement in the terms-of-trade. Probably, Italy has done some internal disinflation, being unable to devalue – but this implies that wages have suffered relatively. The question is how to redistribute the benefit of the German shock without killing the golden goose.

La Febbre

A couple of weeks back I had the pleasure of seeing Alessandro D’Alatri’s recent film La Febbre (Fever). As the reviewer says (Italian link), this is a ‘normal’ (everyday) film, not a great one, even if it does include one or two memorable moments, like the scenes shot along the river bank, which were (and I imagine this is not entirely unintentional) rather reminiscent of some which are to be found in the unforgettable L’Albero Degli Zoccoli from that giant of Italian cinema Ermanno Olmi.

La Febbre è il classico film italiano, che vuol raccontare una storia normale, di tutti i giorni, e che per farlo non trascende dai canoni della buona creanza del plot, e da quel pizzico di amara critica sociale che lo rende molto politically correct.”

(La Febbre (the fever) is a typical Italian film, the kind of film which tries to tell a simple, ‘normal’ story – an everyday one – and which in order to do this stays well within the bounds of what is normally thought to be an acceptable plot structure, and then, following the recipe, there is added just enough social criticism to make the film a highly politically correct one.)

My point of interest in this post, however, is not really the film itself, but rather the film as a reflection of something else: the disenchantment and frustration that many young Italians seem to feel with contemporary Italian society, and the impact that the evident failure of Italian civil society to adjust to Italy’s contemporary social and demographic reality may have on the future evolution of Italian economy and society.
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