Wednesday, November 16, 2005

Vive La France? All of continental Europe slipping

The riots in France are certainly a challenge but a problem that can be fixed. After two weeks of the continuing unrest, it is clear that this is the next and more intense level of immigration friction in Europe (Netherlands and Germany, and France previously have already had displays). While the friction is more than a surface problem, it is tangible and solvable, not necessarily easily, but it is clear that the French need to economically integrate immigrants into the national economy.

Recent tax legislation in Germany is a much larger problem because the instigators are the government leaders and they do not see that their actions are driving exactly the opposite of progress. The incoming German coalition government has been proposing and passing a variety of new taxation measures, the most prominent of which is a sales tax/VAT increase of 3% to 19% due to start in 2007. Greater income tax rates are also to be imposed. With stronger twin handcuffs on income generation and consumption, there is little economic incentive for anyone to do other than succumb to the ever-dwindling social programs of the state. Everything about these tax increases is the opposite of sponsoring incentive, ingenuity, innovation and progress and retards any hope continental Europe may have had in modernizing.

In addition to inadequate immigrant integration and Germany's new tax legislation, continental Europe is not making broad political and economic reforms and has not made the transition to the service economy that dominates the vanguard of the world's successful and evolving economies. Europe no longer has a competitive basis for manufacturing, only an historical precedent. With continent-centric short-term leadership myopia, there is a real concern that Europe will not be able to make the meaningful political and economic reforms necessary to move forward and is slipping dramatically on the stage of world competitiveness and influence.