NEWS,13.10.2012

Why Europe Is Failing to Prevent the Spread of the Euro Crisis

Europe's economic crisis is like a runaway freight train and its politicians have yet to find a way to stop it before it breaks ground and completely derails. All the while, the crisis continues to escalate unabated. In Greece, for instance, efforts to tame the country's monstrous debt (expected to reach 180% of GDP in 2013 much more than previously projected) with several rounds of fierce budget cuts and three years of severe austerity have probably done more harm than good for its beleaguered economy, which is expected to shrink by 7% this year. In the absence of a realistic timetable or successful plan of action to solve the crisis, Europe's politicians seem stuck. They have failed to contain the prolongation and the spread of the crisis despite numerous Eurozone summits and other high-level talks about how to save Europe's single currency. It seems as though it has become easier to turn this crisis into a moral and ethical crisis that uses Greece as a target.They have lost sight of the real problem the structural problems stemming from high administrative burdens and the unpredictability of tax systems (France and Greece, for instance, have changed their rate of taxations multiple times) that ultimately result in too-high production costs, which in turn stifle creation and restrain innovation. This is exactly what is keeping European economies from growing.Now that we have identified the problem, it's time to find a solution by changing the conversation in Europe. The conversation about the need to compete with emerging markets like China and India is mute. Europe does not need to compete with these countries. Europe needs to compete with Europe in order to move to the next level, become efficient and spur innovation and herald a new wave of development and growth.To do this, Europe needs to start looking ahead and focus on the so-called Blue Ocean Strategy as regards its economic development. Europe also needs to create new market space getting a bigger Bottom Line to render the competition irrelevant. But even though innovation is the undeniable key to success, Europe seems to be stuck on a Red Ocean strategy (a market-share battle) a conventional approach to business of beating the competition in an existing confined market space. This is one reason the European Union one of world's largest trading blocs is a long way away from becoming the world's most competitive. Europe is also bogged down by too much bureaucracy, too many regulations and a relatively unstable tax regime in many of the EU member states. In France (the second largest economy in Europe), for example, tax laws have been amended eight times over the past two years. Greece has made some 16 revisions. It's this combination of excessive bureaucracy and over-regulation that is ultimately keeping Europe from becoming an attractive incubator of innovation and entrepreneurship. Today's European economic model stumbles on the very high costs associated with processes and transactions. This is largely due to vested interests and the burdensome bureaucracy that unavoidably hides the creation of more reforms. This is why sweeping simplifications are necessary. Economists' incessant pleas for more flexibility have largely gone unheard. It's been more than 20 years since economists started urging EU policymakers to reform labor markets and ease rigidities in the markets. Only Germany has listened, mainly after the pressure created with the unification of East Germany. By doing so, Germany has achieved the highest level of labor reforms in the entire 27-member bloc. The other economies have yet to follow suit. What lies ahead?Europe is at crossroads. It's either going to remain stuck in an old school productive model based on heavy industry, manufacturing and services and no real innovation or it's going to create an economic ecosystem for the next generation. Since it is counterproductive to try to out-perform the competition because it reduces prices, Europe should be creating new markets (or blue oceans) by investing in new technology and new ideas. The creation of new sectors, however, is not going to be easy. Europe needs to start by making some deep changes in its economic pattern of behavior and pass structural reforms aimed at simplifying procedures and encouraging innovation.It's not too late for Europe to turn things around and start pioneering a new generation of groundbreaking industries in an uncontested market space. The list of possible industries is endless and includes everything from high-tech applications of traditional sectors (tourism and agriculture) to green investing and impact investing.Europe should re-power its Silicon Valley-like engines to promote entrepreneurship. It's currently losing its high-tech talent to countries like the United States where the infrastructure is already in place and investment capital is easier to access. An infusion of venture capital funds and expertise can help Europe's engineering and technology universities create a new generation of entrepreneurs.Europe can start by forming new markets that combine technology with traditional industry and services. If policymakers do not embrace creativity and innovation, Europe will end up becoming a very well-experienced butler to China and Asia in general. It's just as John Maynard Keynes, the 20th century's most influential economist, had said about the British economy that it would become the butler of the United States if it stubbornly refuses to adjust to modernization.Time is of the essence Europe needs to start rebuilding its rickety foundation of productivity because financial markets are merciless and move at a much faster pace than any bureaucratic policy decisions in Brussels. The crisis, which started in Greece, sounded all types of alarm bells but they were not heard. The current productivity model fuels informality, especially in the periphery of the European Union. The informal economy has grown from the need to circumvent the overregulation under-regulation and inflexible procedures and the unpredictability of extralegal procedures, rules and regulations.The findings of the World Bank's 2012 Doing Business Survey speak volumes. Debt-stricken Greece ranks 135 out of 183 countries as regards the ease of setting up a business. Spain ranks 133 and Austria 134. Even Germany, the European Union's powerhouse, holds the 98th spot -- nowhere near New Zealand, Australia and Canada (the top three countries). The United States ranks 13.A poor showing on the World Bank's survey denotes the intractability of bureaucracy all the messy overregulation, under-regulation and the super-regulation that is difficult (at times impossible) to bypass.There is only one solution. It's three-fold and involves simplification, deregulation of the market and standardization of procedures. All three can lead to low costs and wider bottom lines (profits).

 

Mitt Romney Ad Spending: Candidate And Allies Greatly Outpace Obama As Election Closes

Mitt Romney's campaign and its Republican allies are set to outspend the president's campaign and allied Democratic groups by more than $18 million on the airwaves just this week, according to data provided by a Democratic source.The disparity, with Republicans spending $41.7 million and Democrats spending $23.5 million, illustrates a strategic gamble on behalf of the GOP presidential nominee to bury President Barack Obama and burn past him during the closing weeks of the campaign."Patience is a virtue," one Republican source said of the decision to hold resources until the last weeks of the campaign. The Republican source, who like all others would only discuss ad buying strategy and details on condition of anonymity, put the ad disparity at somewhat smaller than $18 million. The source offered the following data for the money being spent on both national cable and swing state television ads between Oct. 8 and Oct. 14.

1. Romney campaign: $17.7 million
2. Obama campaign: $16.5 million
3. The Karl Rove-started American Crossroads: $7 million
4. The Romney supporting super-PAC Restore Our Future: $6 million
5. The Obama supporting super-PAC Priorities USA: $4.2 million
6. The National Rifle Association: $1.3 million
7. The conservative American Future Fund: $400k

The reason that the Democratic breakdown of ad spending numbers is different than the Republican breakdown is owed to the fact that they included radio ad expenditures as well as additional advertisers. For instance, Planned Parenthood is set to spend $1 million on ads this week, while the Republican Jewish Coalition is set to spend $1.2 million. The disparity could grow larger going forward. On Friday evening, the Washington Post reported that Restore our Future was upping the ante even further, booking $14 million of ads in nine battleground states for the last week of October. A request for comment from Priorities USA was not immediately returned. Combined with Romney's strong debate performance, the money being spent on the airwaves seems likely to have elevated the Republican candidate's standing nationally and in the battleground states. But not all money spent on television ads is equal. Outside groups and super PACs, for instance, can not qualify for the lowest unit rate for ad slots, which can mean that they end up spending up to three times as much for the same amount of air time. In addition, the Romney campaign has pursued an ad-hoc ad buying strategy -- booking spots week-by-week as opposed to in month-long chunks -- that gives it more flexibility but costs more money. So while the Romney campaign and its allies may be spending more on television ads this week, it's difficult to ascertain how much (if any) advantage they have with respect to the number of ads actually aired. That said, a recent Washington Post article indicated that Romney was making up ground on that front as well.Still, the ad wars raise an interesting question for the Obama campaign. If all that's needed in the race to 270 Electoral College votes is a victory in Ohio, Iowa and Wisconsin (provided the president holds on to Michigan and Pennsylvania), why not take resources from one of the more difficult-to-win swing states and send them there? "Absolutely not," Obama campaign manager Jim Messina said, when asked whether the campaign is considering this, during a conference call Thursday morning. "Look, we understand that we need as many pathways to 270 electoral votes. That’s been the theory of this campaign since April of 2011. We think we have a path to victory in all our battleground states and we are going to go prosecute those paths. And because of our outpouring of supports from our grassroots donors we have the ability financially to compete everywhere we want to compete. And that’s what we are going to do."

Obama Defends Auto Bailout: 'We Bet On American Workers'

President Barack Obama sought on Saturday to sustain momentum from Vice President Joe Biden's strong debate showing by touting the benefits of one of his signature actions, the rescue of the U.S. auto industry, as he prepared for his next debate with Republican Mitt Romney."We refused to let Detroit go bankrupt," Obama said in his weekly radio address. "We bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way."The president will drop from view for several days to prepare for his second debate with Romney on Tuesday. By focusing on the health of the auto industry, currently benefiting from strong sales, Obama is reminding voters he came to the industry's rescue. Romney had opposed government help for automakers.Obama is hoping to build on Biden's confident performance at the vice presidential debate on Thursday after his own listless debate performance last week gave Romney a sharp boost in opinion polls. He meets the Massachusetts governor for the second of three debates on Tuesday evening in a town-hall format.In his address, Obama highlighted trade agreements that helped promote sales of U.S. autos abroad. Romney has called the Obama administration's record on trade weak and promised to wage much more aggressive campaigns to open markets abroad to U.S. goods and services."I want to see more cars on the road in places like South Korea imported from Detroit and Toledo and Chicago," Obama added.Obama also said that "after 30 years of inaction, we raised fuel standards so that by the middle of the next decade, cars and light trucks will average almost 55 miles per gallon - nearly double what they get today."