SADDLE UP:

The engines of Europe limp into '05 (Carter Dougherty, January 5, 2005, International Herald Tribune)

Fiscal stimulus, or public spending, is the traditional method that governments use to galvanize growth. But it remains largely off-limits because France and Germany are near or over the budget deficit limit in the European Union's Stability and Growth Pact, which lays down rules for the 25-nation bloc. Jean-Claude Juncker, Luxembourg's prime minister and the current chairman of the rotating EU presidency, will shepherd revisions to the pact in the coming months.

President Jacques Chirac of France argued on Tuesday that the pact, though useful for encouraging fiscal discipline, "should not aggravate the situation of a country in recession or in a period of weak growth," Agence France-Presse reported.

The French national statistics office announced Tuesday that the economy came to a standstill in the fourth quarter of last year, and predicted that the year 2004 would show a slight expansion of 2.2 percent, not enough to dent unemployment that stands at 9.9 percent.

Also on Tuesday, the German government reported that the number of people looking for work in December rose for the 11th consecutive month, to 4.5 million, putting the overall unemployment rate at 10.8 percent.

The strong euro, which crept upward to a new high around $1.36 in holiday trading, also lurks over European exports as a potential spoiler for 2005, economists said.

It's a wonder that anyone ever thought the two most powerful nations in Europe intended to be the horse when clearly their only interest in the EU project was the free ride.

Posted by Orrin Judd at January 5, 2005 12:17 PM