Britannia Radio

WALL STREET JOURNAL 29.4.09 B
Voters Wait for Europe's Fiscal Plans to Show Results

By MARCUS WALKER in Berlin, DAVID GAUTHIER-VILLARS in Paris and 
THOMAS CATAN in Madrid

In Spain, when the previous finance minister said there was no room 
for tax cuts or spending to buoy the economy, he was sacked by the 
prime minister. "There is room -- there can't not be," new finance 
minister Elena Salgado said last week, in the face of a Europe-high 
17% unemployment rate.

But in the U.K., France and Italy, gaping budget deficits have 
largely ended the chance of major new tax cuts or spending . Germany 
says that despite expecting a 6% dive in its economy this year, it is 
more worried about stoking inflation in 2010.

As Europe's biggest countries fall together into a recession 
forecasted to be deeper and longer than in other regions, proponents 
of a more aggressive fiscal policy wonder how long European leaders 
can continue to reject one -- and why leaders aren't under more 
pressure to change.

"The people in Germany are relatively calm at the moment," says 
Manfred Güllner, head of Berlin opinion-polling institute Forsa. 
"Unless the crisis reaches another dimension of mass unemployment and 
falling incomes, social unrest is far-fetched."

That day may come. Germany's two biggest parties, which now govern in 
a coalition, are about to start battling in a fall election in which 
the economy will be the big issue. Mass unemployment wrecked the 
popularity of Germany's previous chancellor, Gerhard Schröder. French 
President Nicolas Sarkozy has faced a flurry of sometimes-violent 
wildcat strikes and "boss-nappings" in which workers protesting 
layoffs held their managers hostage.

European opposition politicians on the left and some labor leaders 
are calling for higher spending. "We need a further stimulus package 
that is as big in relation to our economy as the packages in the U.S. 
and China," says Dietmar Bartsch, general secretary of Germany's Left 
Party. The U.S. will spend 4.8% of last years' GDP on stimulus by 
2010 and China 4.4%, while Germany plans 3.4% and other European 
economies less than that, according to International Monetary Fund 
figures.

Other opposition parties are calling for new tax cuts, including 
Germany's pro-business Free Democratic Party, whose popularity is 
rising. Spain's conservative Popular Party, also rising in opinion 
polls, is calling for tax cuts as well as a government austerity drive.

Leading business federations in Germany, France and Italy aren't 
clamoring for big new moves by their governments. German business 
leaders instead have voiced concern about public debt weighing on 
future growth.
Voters also worry most about the state's ability to pay its generous 
pensions.

Germans in particular are concerned about higher public debt, and 
opinion polls show a majority support their government's wait-and-see 
policy.
Leaders in France, Germany and elsewhere are saying that already-
planned steps such as public-works investments will generate jobs and 
business activity.

Voters in these countries are tolerating the restraint partly because 
the recession hasn't hit them as directly as in the U.S. High 
unemployment is more familiar in Europe than in the U.S. Lower 
household debt, generous welfare states and universal health care 
mean that job losses -- while unwelcome -- are less scary.

"There's a more long-term perspective here: Fundamentally, the 
mainland European view is that business cycles are inevitable and 
even a healthy process," says Julian Callow, economist at London bank 
Barclays Capital.
U.S. policy seems more haunted by its laissez-faire policy of the 
early 1930s that led to the devastation of U.S. business and 
employment, he says.
Europe's critics say its undeclared strategy is to use its welfare 
systems as a cushion and wait for economies such as the U.S. and 
China to lead a global recovery.

In Germany -- by far the biggest European economy and the one most 
economists say could afford to boost the rest -- the government has 
signaled that at most it's willing to spend extra money to expand 
existing measures, including helping companies to pay wages to avoid 
layoffs, and subsidies for people who scrap an old car and buy a new 
one -- a European policy that the U.S. is copying.

Otto Bernhardt, a German lawmaker and ally of Chancellor Angela 
Merkel, says another major stimulus package could harm the economy by 
fueling inflation in 2010 and beyond, though most economists say the 
German inflation fear is exaggerated.

In France, Mr. Sarkozy has offered a string of concessions to buy 
time. They include aid to low-income households and to help companies 
hire more young people, and a cut in sales tax on restaurant bills to 
5.5% from 19.6%.

Many incidents such as rioting strikers at Continental AG reflect 
bargaining tactics more than social unrest. "It's not the best 
solution, but in France we act first to make sure our demand is 
heard, and then we sit down to negotiate," says Antonio da Costa, a 
worker representative at Continental's French unit.

Yet Mr. Sarkozy is in a bind: He won election on a promise that he 
would boost economic growth by trimming France's large state sector. 
Now he's under pressure to increase minimum wages and hire more civil 
servants.
Spain's fiscal stimulus measures, at 4.1% of GDP, are among the 
biggest in Europe. But its collapsing housing and consumer bubble is 
still hitting the population faster and harder than the manufacturing-
led recession in most of mainland Europe.

To reduce social tensions, the government is paying immigrant workers 
to return to their country of origin, but so far there are only 
around 4,000 takers, a tiny fraction of the more than five million 
immigrants since 2000.
Possible new measures include extending jobless benefits and fresh 
spending on Spain's renewable energy and biotechnology sectors. But 
the chief economist of Spain's central bank says if spending most be 
restrained there too. Otherwise, "we will find ourselves in a 
situation where we have to apply restrictive measures" in the midst 
of a contracting economy, José Luis Malo de Molina said in a recent 
interview.
---------------------------------------------------------------
Write to Marcus Walker at marcus.walker@wsj.com and David Gauthier-
Villars at David.Gauthier-Villars@wsj.comrother