Friday, March 27, 2009

The Europeans did it right in the beginning

[my bold]:

....rather than resorting to layoffs, Mr. Koppe asked half his employees to come in every other week. The government would make up roughly two-thirds of their lost wages out of a fund filled in good times through payroll deductions and company contributions.

The program — known as “Kurzarbeit,” which translates as “short work” — and others like it lie at the heart of a heated debate that has erupted on the eve of next week’s Group of 20 meeting of industrialized and developing nations and the European Union, creating a rift between the Obama administration and European governments. The United States is pressing for a coordinated package of stimulus plans by member countries to encourage economic growth, something that Prime Minister Mirek Topolanek of the Czech Republic, which holds the European Union presidency, has called “a way to hell.”

But virtually all European governments, led by budget-conscious Germany, are resisting the American pitch, saying the focus should be on stricter regulation of financial markets.

The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate.

Europe’s extensive job protections and unemployment benefits are “bad in the upswing, because firms don’t dare to hire people, because then they are glued to them,” said Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Munich. “In the downswing, it’s good if the people are glued to the companies. They keep their jobs. They keep their income. They keep consuming.”

The German Federal Labor Office projects that it will spend some $2.85 billion this year for more than a quarter of a million people who end up on Kurzarbeit. In comparison, the agency doled out around $270 million last year, as the financial crisis first began to bite, and roughly $135 million in both 2006 and 2007.

That is a relatively small amount of money compared with the $787 billion stimulus package passed by Congress, but the Kurzarbeit program’s defenders in the German government say it is carefully calibrated to keep people on the payrolls, where shared burdens mean an efficient deployment of resources.

The big numbers at the top of stimulus bills — promises of future highways, for instance — are not the same as money going into consumers’ pockets right now, and from there into cash registers, economists here say.

“While the magnitude of stimulus has been much less in Europe’s case, the stimulus has been getting much better traction in Europe than in the U.S. so far,” said Julian Callow, chief Europe economist at Barclays Capital in London. He cited a German incentive program that gave consumers around $3,400 to trade in old cars for new ones and that had led to 22 percent more auto registrations in February compared with the previous year.

“Europe can still do significantly more and needs to do it, but the needs for the U.S. have been much more pressing,” Mr. Callow said.

Germany already has generous unemployment benefits compared with the United States. And many German companies give workers the flexibility to save overtime hours, carrying over the pay for a rainy day. In the United States, despite scattered reports of unpaid furloughs and wage cuts, companies still rely heavily on layoffs to control labor costs.
You mean they are ignoring our invitation to come into a house of cards which is on fire and falling down? I can't imagine why not.....

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