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PostPosted: Sat Feb 04, 2006 9:39 am
 


Want to know what's funding the US deficits? At least part of it is coming from Europe. European companies are voting with their pocketbooks and spiriting capital out of Europe into America. And with good reason.

I originally found the article in a Canadian economics blog. The bloggist's comments about the article are first, then the article follows.

$1:
Thursday, February 02, 2006

You Mean Capital's Mobile?

Want to know why all sorts of firms are investing in the US? Because it's not Europe. And, at least to date, hasn't managed to tie firms up quite as tightly as have other countries, although one suspects that that's not for want of trying.

...

Think that could be the source of the capital account surplus that's balancing the Americans' massive current account deficit? that the Europeans, by driving firms out of Europe, are driving investment into the US? That current account deficit means that the Americans are buying more (in value) in the way of foreign goods than foreigners are in the way of American goods: think the Americans are at least spending money on European made goods?

...

The trouble, of course, is that they won't free up labour markets (think Polish plumbers), and they will continue to hand out taxpayers monies - the only difference is that they'll pick a bunch of neat sounding high tech firms to hand it to. And they won't do any better at picking winners in the "knowledge-based" industries than they have done in their traditional industries.

$1:
Mr Aho refused to follow the lead of French or German politicians, who have attacked major corporations for investing overseas and called for more "economic patriotism".


Economic patriotism. How close is that to actually ordering firms to invest? Do you think these guys are buying their stuff from Lou Dobbs? Back to Mr. Aho:


Rather than attacking firms, make it more attractive for firms to invest. They just don't get it. Tick, tick, tick.

Canadian Econoview Blog

And the article

$1:
Red tape 'turning best firms away from Europe'
By David Rennie in Brussels
(Filed: 21/01/2006)

Europe's most successful companies are turning their backs on EU markets because of red tape, a high-level report said yesterday.

The companies that Europe needed to survive were instead investing more money than ever in the United States and Asia, concluded the report, presented to the European Commission in Brussels.


EU

The lack of investment was so dire that it threatened Europe's "comfortable" way of life. "Europe has to act before it's too late," said the report's author, Esko Aho, the former prime minister of Finland.


The findings made unsettling reading for the EU leaders, ripping into their pledges to build a "knowledge-based Europe" that would overtake America in 10 years.

The reality was the opposite. Not only were US, Chinese and Japanese firms outspending Europe on research and development, the gap with Europe was growing.

Perhaps most damagingly, Europe's most important countries were pouring more and more of their technology investment overseas, as they despaired of the European Union becoming "innovation friendly".

Unless EU governments took bold action to increase spending on research, freed labour markets so skilled workers could move more easily, and stopped pouring taxpayers' money into dying industries, Europe's post-war way of life was doomed.

The report said: "Europe must break out of structures and expectations established in the post-Second World War era that leave it today living a moderately comfortable life on slowly declining capital.

"This society, averse to risk and reluctant to change, is in itself alarming but it is also unsustainable in the face of rising competition from other parts of the world. For many citizens without work, or in less-favoured regions, even the claim to comfort is untrue."

Mr Aho refused to follow the lead of French or German politicians, who have attacked major corporations for investing overseas and called for more "economic patriotism".


He said: "We cannot blame them. They are trying to take care of global competitiveness. Unfortunately, these companies can survive without Europe, but Europe cannot survive without these companies. That is why Europe has to act before it's too late."

His report listed a string of gloomy indicators. In 1992, six out of the 10 top-selling pharmaceuticals were produced by European companies. In 2002, this figure had fallen down to two. European firms invested billions more in the United States than US firms invested in Europe.

The report called for better access to venture capital funding to finance innovative companies and more movement between universities and business. The total pool of risk capital investment spent in Europe had shrunk by 90 per cent since the height of the information technology boom in 2000.

European governments were criticised for continuing to pour state aid into dying industries such as cars, steel and textiles. As part of the so-called Lisbon agenda of 2001 EU leaders committed themselves to spending three per cent of their gross domestic product on research and development.

Halfway through the 10-year Lisbon agenda programme, the EU still spent a meagre 1.9 per cent, far behind the US or Japan.

The commission recently predicted that China, for long seen a source of nothing more than basic manufacturing, is spending so much on higher education and research that it would itself overtake the EU on research spending by 2010.

In productivity, the report noted that Europe badly needed to extract more productivity from each worker.


The Telegraph

It boggles my mind that the Canadian Left would want to emulate Europe's economic structure.


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PostPosted: Sat Feb 04, 2006 10:49 am
 


Good stuff there Toro. Canada has a choice as to which road to take - hopefully, it will take the Anglo-Saxon free market option as continental Europe with its stifling corporatism is a busted flush. I just hope that the UK pulls back from the brink as well......


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PostPosted: Mon Feb 06, 2006 1:10 pm
 


Global imbalances pose threat of economic disruption
$1:
The world economy faces possible disruption without urgent action to correct global imbalances, the Bank of Canada's governor said Monday.

Such imbalances include the U.S. current account deficit and growing surpluses in some Asian and oil-exporting countries, David Dodge says in a speech for delivery to the Barbados International Business Association.

Dodge said that while international capital flows are the lifeblood of the global economy, the huge financial flows into the United States are not sustainable indefinitely.

A sudden increase in domestic savings in the U.S. could bring a sharp slowdown in global economic growth unless there is a corresponding growth in domestic demand in other countries, he said.


Protectionism in North America is more of a threat than productivity levels in the EU.


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PostPosted: Mon Feb 06, 2006 8:38 pm
 


Perhaps the best scenario is for a rise in savings by the US consumer and a slowdown in consumer spending.

There is anecdotal evidence this is now occurring.


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