European Dream Only a Fantasy, as Europeans' Quality of Life Falls Precipitously

http://www.nytimes.com/2008/05/01/business/worldbusiness/01middle.html?partner=rssnyt&emc=rss


For Europe’s Middle-Class, Stagnant Wages Stunt Lifestyle


By CARTER DOUGHERTY and KATRIN BENNHOLD


New York Times


May 1, 2008


LES ULIS, France — When their local bakery in this town south of Paris raised the price of a baguette for the third time in six months, Anne-Laure Renard and Guy Talpot bought a bread maker. When gasoline became their biggest single expense, they sold one of their two cars.


Their combined annual income of 40,000 euros, about $62,500, lands Ms. Renard, a teacher, and Mr. Talpot, a postal worker, smack in the middle of France’s middle class. And over the last year, prices in France have risen four times as fast as their salaries.


At the end of every month, they blow past their bank account’s $900 overdraft limit, plunging themselves deeper into a spiral of greater resourcefulness and regret.


“In France, when you can’t afford a baguette anymore, you know you’re in trouble,” Ms. Renard said one recent evening in her kitchen, as her partner measured powdered milk for their 13-month-old son, Vincent. “The French Revolution started with bread riots.”


The European dream is under assault, as the wave of inflation sweeping the globe mixes with this continent’s long-stagnant wages. Families that once enjoyed Europe’s vaunted quality of life are pinching pennies to buy necessities, and cutting back on extras like movies and vacations abroad.


[THE EUROPEAN DREAM WAS AT BEST A FANTASY, AT WORST, AN OUTRIGHT LIE]


Potentially more disturbing — especially to the political and social order — are the millions across the continent grappling with the realization that they may have lives worse, not better, than their parents.


“I have this feeling that there is a wall in front of us,” said Axel Marceau, a 41-year-old schoolteacher living outside of Frankfurt. “We’re just not going to get any further.”


His concerns are well-founded. A study by the German Institute for Economic Research in Berlin found that the broad middle of the German work force, defined as workers making from 70 to 150 percent of the median income, shrunk to 54 percent of the population last year, from 62 percent in 2000.


Mr. Marceau’s father had a teaching job that afforded the family upward mobility, from owning a home to fancy ski vacations. But today, Mr. Marceau said, a new class of bankers, executives and other high earners has taken over. “I feel like we’ve been in a slow process of losing to the people up top,” he said.


“No one thought during the 1980s that they could possibly belong to a group of people who slide down the social scale,” said Markus Grabka, an economist at the institute for economic research. “No one had existential angst of the sort you have today.”


To be sure, Europe’s middle class is still larger than the number of people at risk of falling into poverty — and, by many measures, more protected than the American middle class. But policy makers worry that could change as the European economy starts to feel the drag of an American slowdown and high inflation.


[OF COURSE, EUROPEANS BLAME THE AMERICANS FOR THEIR OWN POLICY FAILINGS]


“The problem,” said Julián Cubero, chief economist for Spain for BBVA, a leading Spanish bank, “is that if your salary rises more slowly than the cost of products you buy on a daily basis, you feel poorer every day.”


That simmering concern turned into anger last week in Britain. Striking teachers closed schools for the first time in two decades, protesting pay packages that did not keep pace with the soaring cost of living. Proposed raises were about 2.5 percent, while food has risen 7 percent and oil costs have surged 20 percent in Britain since this time last year.


The teachers’ rallying cry was just the latest to echo across the Continent.


German workers from several industries waged a series of strikes last month demanding a greater piece of the economic pie after years of being asked to make salary concessions — flexibility that, some economists argue, has helped a leaner, meaner Europe stave off recession so far.


In France, where purchasing power has replaced unemployment as Public Enemy No. 1, unions representing workers from teachers to factory workers have taken to the streets in protest.


This month, thousands of European workers converged on the capital of Slovenia, which currently holds the European Union’s rotating presidency.


[PERHAPS, THESE WORKERS SHOULD RELY LESS ON SO-CALLED UNION BENEFITS, AND CONCENTRATE MORE ON SELF-HELP. RELIANCE ON OTHERS BREEDS RENT-SEEKING AND LESS THAN OPTIMAL PERFORMANCE]


Quantifying the squeeze on Europe’s middle class is tricky; there is no universal definition of middle class, and national agencies differ on how they calculate purchasing power, making cross-border comparisons difficult.


Tallying inflation is simpler: Since 1999, prices have risen 22.5 percent in the 27 member states of the European Union, and 18.8 percent in the 15 countries that use the euro.


Much of the declining purchasing power of European workers can be traced to those numbers, and to policy decisions and economic developments over the last decade when globalization began to reshape Europe and the world.


[THESE ARE SEEDS OF ANTI-AMERICANISM - AMERICA IS BEING IDENTIFIED AS THE CAUSE OF GLOBALIZATION. IS EUROPE'S SOLUTION TO GLOBALIZATION THE NEGATIVE MALTHUSIAN SUSTAINABLE DEVELOPMENT-BASED ENVIRONMENTAL GLOBAL GOVERNANCE IT IS NOW PROMOTING AT THE UNITED NATIONS AND OTHER MULTILATERAL FORA???]


In Germany, Europe’s largest economy, the decline in purchasing power began in 2000, when employers started wresting wage concessions from unions, or simply shifting jobs to Eastern Europe and China.


[CORRECTION, GERMANY AND ITALY STARTED INVESTING IN CHINESE FACTORIES DURING THE 1990'S, ESPECIALLY IN THE TEXTILE, CERAMICS, CASTING AND OTHER LABOR-INTENSIVE MANUFACTURING SECTORS.]


Inflation-adjusted incomes rose from 1 percent to 2 percent in the late 1990s, but more than one million Germans lost full-time jobs during and after a recession in 2000 and 2001.


Subsequently, workweeks got longer without extra pay, and from 2004 through 2007, inflation outpaced income increases for the average family.


In France, the 35-hour workweek kept average annual pay increases below 1 percent for nearly a decade, said Robert Rochefort, the director general of Credoc, an organization in Paris that researches living standards. But French hypermarkets — big-box supermarkets that dominate the retail market — kept prices high, he said.


Spain generated thousands of jobs by pumping up the housing market, but has undergone a joblessness jump since the turmoil in real estate markets while wages have been consumed by inflation.


“When I started working at 23, I earned almost the same wage that I earn now,” said María Salgado, a 37-year-old director of television documentaries living in Madrid. Fourteen years ago, her monthly salary of about 1,200 euros ($1,873), bankrolled a full social life.


No longer. “The well-to-do middle class has become the tight middle class,” she said. “I’m surprised we haven’t started a revolution.”


Instead, Ms. Salgado cut her fish purchases to once a week, switched to supermarket brands and away from health-food stores, and halved her visits to the psychotherapist. She spends some weekends with her children, Violeta, 9, and Juan, 4, at her ex-husband’s parents’ home in the countryside — a stressful arrangement, but one that enables her to avoid expensive weekends in Madrid.


“Violeta asked me, ‘Mama, are we poor?’ I said, ‘No, we’re not poor,’ ” Ms. Salgado recalled, laughing. “But the middle class used to live well. And if you have lived well, it’s hard to live so badly.”


Stagnant pay and soaring prices have hit Italy hardest. Recent statistics from the country’s main shopkeepers’ union showed consumer spending was down 1.1 percent in January from a year earlier, the biggest drop in three years. Leisure and recreation spending fell 5.5 percent.


Francesca Di Pietro, a secretary, and her partner, Gianluca Pompei, a project manager, are part of that trend. Since their son, Mario, was born nearly two years ago, they have spent little on entertainment.


“I’ve become anxious about unexpected expenses,” Ms. Di Pietro said. To stretch their monthly income of about 2,500 euros ($3,900), the couple has been getting hair cuts at the local beauty school, packing a lunch for work, buying secondhand clothes in market stalls and vacationing at campsites instead of hotels.


They have abandoned their dream of living in central Rome, from an outlying neighborhood.


“I look at people on the bus and they seem sad and beaten down,” said Ms. Di Pietro, referring to Italy’s malaise. “We’re 40 years old. We should be feeling more combative, but really all we feel is frustrated.”


Some European governments are promising relief, but their ability to curb inflation or raise pay is limited.


Italy’s warring political coalitions both ran in last month’s elections promising to lighten the financial burden of average Italians. Their proposals ranged from eliminating unpopular real estate taxes to subsidizing dental care.


In France, the administration of President Nicolas Sarkozy is, among other things, looking into charges of price gouging by food merchants.


German leaders are considering lower taxes. It may not be enough.


Frustrated unions are taking tougher stances in wage talks. Public sector employees, as well as workers in the steel and chemical industries, have recently won wage increases.


“The idea that ‘I will sacrifice to save my job’ is dying,” said Ralf Berchthold, a spokesman with Ver.di, the largest services union in Germany. “People are ready to fight now.”


Carter Dougherty reported from Frankfurt, and Katrin Bennhold from Paris. Victoria Burnett contributed reporting from Madrid, and Elisabetta Povoledo from Rome.