If the ECB’s new President Mario Draghi has his way, the European economic model will shift more toward British/American style capitalism and away from the jobs-for-life-style socialism that has defined it for decades.
Mario is more honest about the failure of the European social contract than any major Euro pol, which makes his comments in the Wall Street Journal this week fairly noteworthy.
Humble Student picks out a few of the choice statements from that WSJ Interview:
WSJ: Which do you think are the most important structural reforms?
Draghi: In Europe first is the product and services markets reform. And the second is the labour market reform which takes different shapes in different countries. In some of them one has to make labour markets more flexible and also fairer than they are today. In these countries there is a dual labour market: highly flexible for the young part of the population where labour contracts are three-month, six-month contracts that may be renewed for years. The same labour market is highly inflexible for the protected part of the population where salaries follow seniority rather than productivity. In a sense labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.
And how about this exchange:
WSJ: Do you think Europe will become less of the social model that has defined it?
Draghi: The European social model has already gone when we see the youth unemployment rates prevailing in some countries. These reforms are necessary to increase employment, especially youth employment, and therefore expenditure and consumption.
WSJ: Job for life…
Draghi: You know there was a time when (economist) Rudi Dornbusch used to say that the Europeans are so rich they can afford to pay everybody for not working. That’s gone.
Now of course this kind of reform (revolution?) is easier talked about than implemented – entrenched expectations and attitudes being what they are – so no one should expect the Europeans (especially those who are benefiting from the current status quo) to go along without several years of kicking and screaming.