European laws restrict spending, economic growth

Laws that discourage spending may be holding back European economic growth, writes Marcus Walker of the Wall Street Journal.

Generally, European governments use a myriad red tape to induce savings and reduce consumption. For example, shops are required to close early to save staff from long hours; businesses are required to make a comfortable profit on each item, limiting price competition; sales are allowed only during January and July.

The result is a continent that is characterised by high prices, short store hours, and very little consumer spending:

  • Residents of the 12 nations using the euro save 10.5 percent of their income; Americans save less than 1 percent.

  • This year, European consumption growth is 1.2 percent, as compared to 3.6 percent in the United States.

  • The average American spends more than $5,500 a year using credit cards; the equivalent figure for Germany is $64, and for France, just $30.

    With such weak consumption in the euro-zone, its economic growth is stagnating, says Walker. The region's economy will likely grow by 1.1 percent from 2002 to 2004, compared to more than 3 percent for the U.S. economy.

    Source: Marcus Walker, Behind Slow Growth in Europe: Citizens' Tight Grip on Wallets, Wall Street Journal, December 10, 2004.

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    For more on International: Institutions and Growth

    FMF Policy Bulletin/ 21 December 2004
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