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. Last Updated: 07/27/2016

Bush's Economics a Poor Fit in Europe

ROME -- The economic formula that helped U.S. President George W. Bush win re-election may not work as well for German Chancellor Gerhard Schroder and Italian Prime Minister Silvio Berlusconi.

The European leaders, both facing elections no later than next year, are following Bush's example by lowering taxes and letting their budget deficits swell. Their governments and France won an agreement from the European Union on March 23 to ease the deficit limit of 3 percent of gross domestic product to give more scope for tax cuts and extra public spending to boost growth and to tackle rising unemployment.

The trouble is that the U.S. recipe is likely to be much less effective in Europe, say economists such as Thomas Mayer, chief European economist at Deutsche Bank AG in London. The formula "worked in the U.S. because it has a much more flexible economy, it started out from a much stronger fiscal position, and people didn't save," he said. "The European and U.S. economies are very different."

European consumers would be less inclined to spend any extra income and more likely to save it "because of concerns about job security, pensions, slow growth," said Jonathan Hoffman, chief European economist at Royal Bank of Scotland in London. For every billion dollars' worth of fiscal stimulus in Europe, he says, "you get less expansion than you would in the U.S."

That would be both bad political and bad economic news for the European leaders. The eurozone economy will trail the U.S. economy for the 13th year in 14 in 2005, expanding 1.6 percent, the European Commission predicts. The German and Italian economies are both struggling to recover from a fourth-quarter contractions; the jobless rate in Germany, the region's biggest economy, rose to a post-World War II record of 12 percent in March, with 4.97 million unemployed. Companies including Deutsche Telekom and Infineon Technologies are shedding jobs or moving them abroad.

Both Schroder, 61, and Berlusconi, 68, have reason to worry about their governments' political prospects. 's coalition trailed the opposition by 28 percent to 46 percent in a weekly survey by polling company Forsa from March 29 to April 1, while Berlusconi's coalition was defeated in 11 of 13 regional elections on April 3 and 4.