The European Slow Lane - Part I: The August Factor
The European economy continues to underperform the U.S.-- are long August holidays to blame? Also, who is on the European growth committee?
“Vincent—But you know what the funniest thing about Europe is? It’s the little differences. I mean they got the same shit over there that they got here but it’s just— just there it’s a little different.
Jules—Examples?”
Pulp Fiction, 1994
Revised EU GDP figures are coming out, and they aren’t looking pretty. Italian GDP was revised downward further into contraction; Germany was flat on the quarter and down on the year. EU-wide growth was a paltry 0.1%. Compare and contrast with the United States (as we usually do here), where Q2 GDP was also revised downwards— to 2.1% growth.
In other words, this year is a continuation of a trend that both predates and was exacerbated by COVID-19. The EU has slower growth rates, lower consumption, and higher unemployment then the United States. And this despite having a higher labor force participation rate, a traditionally more advantageous external balance, and a less volatile political cycle than its transatlantic ally.
Should we expect this underperformance to be a permanent state of affairs? And are we (as one loyal Letter subscriber wrote me) too critical of Europe— failing to understand that its lower growth rates a choice that is compensated for by more vacation days, a public healthcare system, and a generally more relaxed pace of life? Does Europe simply lie on a different point on the leisure-consumption preference line?
All of these are plausible hypotheses. It is true that Europeans take (and like to gloat about) delightfully long summer holidays. But are these more cultural aspects a fundamental difference in the two economic models, or are they merely what John Travolta’s character Vincent calls “the little differences.” In this series of Europe-related posts, we will try to answer some of the following questions:
Is the “August factor” to blame for poor European economic performance?
Does anyone in Europe have a growth strategy?
Why is Christine Lagarde advocating for a lower income share of labor?
Do European economies suffer from long COVID?
Is the global economy like the Ryder Cup?
Are European immigrants working less than natives?
Is Italy literally dying?
The August Factor
It is no secret that Europeans love their holidays— and they (justifiably) take great pleasure in reminding their no-European colleagues of their long and pleasant summer leave. But does the August factor account for the growth differential between the U.S. and Europe?
Keep reading with a 7-day free trial
Subscribe to The Macro Letter to keep reading this post and get 7 days of free access to the full post archives.