http://www.investors.com/editorial/issues.asp?v=7/1Issues & InsightsTuesday, July 1, 2003
'Cowboy' Economics
INVESTOR'S BUSINESS DAILY
Europe: Germany's Gerhard Schroeder wants to accelerate tax cuts to get his nation's economy going again. Sounds eerily familiar, doesn't it?
The German economy has had a rough three years. It's basically not growing, as the chart shows, and joblessness is back over 10%.
That's why Schroeder — who downplayed German economic woes to instead bash America during the 2002 campaign — decided to step up $28.5 billion in earlier promised tax cuts.
Pardon us, but that sounds suspiciously like Bushonomics – you know, the economic policy of the American "cowboy" whom Schroeder and others on the European Continent like to ridicule.
It must be embarrassing for Germany to take a page from Bush's supply-side book. But it's about time.Germany's relief — the top rate will be cut from 48.5% to 42%, the bottom rate from 19.9% to 15% — will give the economy a boost.
For an average worker making $34,000, the federal tax will drop 27%. Even someone earning $170,000 will see a hefty 11% tax cut, the government estimates.
So why care? Germany is the engine of Europe's economy. When it slows, everyone slows. As German Finance Minister Hans Eichel noted: "Germany and Europe are depending on us to return to growth."
It seems even Germany's militant unions get that message. IG Metall, the country's most powerful industrial union, faced with growing anger and criticism from government officials, the media, economists, even its own members, called off a strike last weekend.
The union wanted what many unions across Europe also want — fewer hours worked for the same pay. If it had won, German employers would have taken an immediate 7.9% hit to their productivity. Businesses already reeling from years of higher costs, higher taxes, growing union burdens and job losses would have faced a stark choice: Close shop, or move elsewhere.
Fortunately for German workers, there's now some hope. Indeed, the hope may be growing across Europe. Last week, the European Union vowed to shrink the Continent's $50 billion in farm subsidies and to stop paying farmers to grow more.
Even in France, a mass movement has sprung up to oppose the communist-dominated unions that have been trying to shut down France's economy. The movement is led by 21-year-old Sabine Herold, who says her idol is Margaret Thatcher, not Joan of Arc.
We're happy to see signs that Europe understands its dilemma. People are fed up with high taxes, too much red tape and subsidies that ruin their markets. Schroeder's cuts won't cure all of Germany's problems, or Europe's, but it's at least a good start.
