Building on the success of France and Germany
Yesterday’s news that France and Germany have moved out of recession gave us some much needed summer cheer. Both economies grew by 0.3% in the three months to the end of June, surprising commentators. Since, between them, Germany and France account for almost 48% of eurozone GDP , the eurozone itself fell by only 0.1% in the last quarter.
But wait! This does not necessarily mean that the downturn is coming to an end. Most other European economies are still in negative growth territory – the UK clearly so, as pointed out by Bank Governor Mervyn King on Wednesday. The risk of a W-shaped recession in France and Germany still remains. Yet we rejoice in every positive sign and yesterday’s news from Paris and Berlin was just such a sign.
How do we build on this news? First, commentators seem to agree on the important role played by consumption in France and Germany. Car scrappage schemes are singled out as having been particularly valuable, which turns another story from today, tucked away on page 2 of the FT, that there will be no extension of the UK scrappage scheme, into a particular disappointment.
Second, unemployment – which always experiences a time lag in recessions – is set to go on rising. Those losing their jobs are, of course, much less likely to spend on consumption goods. Indeed, it would be reckless of them to do so. This means that, as the TUC has long pointed out, firm action to tackle unemployment is not just a social and moral priority, but an economic one too.
Third, banks need to lend more. The Government and the Bank of England have given them the carrot, in the form of unprecedently low interest rates and quantitative easing. It may be time for a little more of the stick. After all, it’s us taxpayers that own large swathes of many high street banks now.
Finally, how well Christine Largarde, the French Finance Minister, made the case against excessive bank bonuses on last night’s Newsnight. She captured the sense of unfairness that most of us feel towards such bonuses perfectly, in her impeccably-spoken English. Here’s hoping that this lead from a Centre Right French Government can be backed up by a Centre Left British one!