Steven Rattner for The New York Times: How to Prop Up the Euro

November 1st, 2011

The New York Times
By, Steven Rattner
November 1, 2011



Here’s the critical takeaway from last week’s European rescue plan: Nothing in it addresses the endemic economic weaknesses that nearly propelled the euro zone into a meltdown.

However successful the package may prove in quelling turbulent markets (a questionable assumption, particularly after Greece’s decision to submit its latest rescue plan to a referendum), the members of the common currency still face the more daunting challenge of how to restructure their Rube Goldberg contraption so that such turmoil doesn’t recur.

The initial misstep by European leaders, of course, was lashing their nations to a common currency without integrating other critical policies, such as government borrowing and regulation.

That allowed differences in growth rates among the countries to persist — and even expand — during the boom-bust cycle of the past half-decade.

Visit Germany and be struck by the palpable energy and drive within the business community. In part because of a “grand bargain” nearly seven years ago that blended deregulation, job security and wage restraint, German productivity and economic output both grew by almost 10 percent between 2000 and 2010.

Contrast that with Italy, where Sergio Marchionne, the exceptional chairman of both Fiat and Chrysler, has lambasted worker efficiency, even threatening to quit the country. In 2009, each worker at Fiat’s Italian factories assembled an average of 30 cars per year, compared with nearly 100 per year in Poland, while being paid more than three times Polish wages.

Italy was the only major European country in which productivity stagnated in the last decade. Its economy barely grew.

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