In the old joke, European hell is where the Germans are the police, the Swiss the lovers, the British the chefs, the French the mechanics and the Italians the bureaucrats. I think it's time for an update.
Europe's economic hell is the place the European Commission described today in its first assessment of the European Union governments' draft budgets. The report was produced under new rules designed to ensure that from now on, when officials in Brussels say your budget is out of order, someone has to do something about it.
In this hellish European economy, the Germans are the spenders, only their government won't inflate the economy in a downturn and their shoppers won't shop. "Our recommendation obviously to Germany is please implement or decide on these kind of economic reforms that would further reinforce domestic demand," said EU Economic and Monetary Affairs Commissioner Olli Rehn, sounding as though he wasn't counting on having much of an impact.
This less-than-a-zinger came just two days after the commission began an investigation into Germany's economy over a suspected excessive current account surplus, now close to 7 percent of gross domestic product, which Rehn sees as a product of too little domestic demand to balance the country's astonishing export success. Under the new fiscal pact rules, if Rehn finds Germany guilty of an excessive surplus, and Germany ignores the steps he proposes to fix it, the country could be fined up to 0.1 percent of GDP, or $340 billion. I doubt, though, that Chancellor Angela Merkel is losing sleep over the possibility of that happening.
The Italians and Greeks are naturals to be in charge of hell's borrowing program. With Italy's debt pile worth 133 percent of GDP and the government failing to press ahead with structural reforms, "There is a risk that the Draft Budgetary Plan for 2014 will not be compliant," the commission said. You think? The report didn't assess the draft budgets of Greece (debt to GDP: 169 percent) and other euro-area economies in bailout programs, not least because, together with the International Monetary Fund, the commission is effectively writing them.
The French are, of course, hell's reformers, not daring to do anything that might give an excuse for strikes and protest, a national pastime. The Organization for Economic Cooperation and Development produced a report this week that excoriates the French government for its torpor. While other European countries have responded to the financial crisis by making structural reforms to improve their external competitiveness, "this adjustment has not happened in France," said the OECD. The commission was similarly critical, saying the French had made "limited progress" on reforms -- one reason French GDP fell by 0.1 percent in the third quarter.
All is not lost, however. The German police are no longer scary, the British have learned a lot about cooking since the horrors of the 1970s, and French cars have come a long way since "Mr. Hulot's Holiday." Bad economic habits die just as hard, but they too can change. After all, we currently have an Italian, Mario Draghi, doing a very good job running the European Central Bank.
I wouldn't, however, put my money on the commission's budget assessments and excessive deficit procedures producing a sudden transformation of economic hell into European heaven.
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