WSJ: Better Things to Do Than Shop

December 10, 2004
PAGE ONE

Cash Economy
Behind Slow Growth in Europe: Citizens' Tight Grip on Wallets
A Thicket of Laws to Protect People Damps Spending;
'Debt Is Disreputable'
Better Things to Do Than Shop

By MARCUS WALKER
Staff Reporter of THE WALL STREET JOURNAL
December 10, 2004; Page A1

BRUSSELS -- Giuseppe Ivaldi has a few ideas about why Europeans consume
so little. An Italian who opened a men's clothing store here nine years
ago, Mr. Ivaldi closes his doors in the chic Espace Louise mall each
weeknight at 7 p.m. He puts items on sale only in January and July, and
the rest of the year marks up a hefty profit margin even though he's
sure that drives many customers away.

He wishes he could do business differently -- stay open late and offer
some items below cost -- more like shops in the U.S. But in the Belgian
capital, as in much of Europe, retail laws require that shops close
early to save staff from long hours. And tax laws require that he makes
a comfortable profit on each item, to limit price competition and
protect small stores.

"I would like to be more flexible," says Mr. Ivaldi. "Europe is very
paternalistic."

Pictu
http://tinyurl.com/5a4rw
Caption:
Giuseppe Ivaldi

While American consumers devour goods from around the world and fuel
global economic expansion, thrifty Europeans are contributing far less
to growth. The strong euro -- up more than 10% since September against
the dollar -- should enable consumers in the euro zone to buy more.

But rules designed to save citizens from harm have conspired with
economic cautiousness to close wallets in continental Europe. A thicket
of laws to protect employees ensnares retailers, keeping prices high
and store hours short. Among other regulations, Greece bans non-Greek
store names, and Italian supermarkets cannot have gas pumps. Limits on
consumer finance protect borrowers from indebtedness -- and stifle the
use of credit cards. Western Europe has only 0.27 credit cards per
person, compared with 2.23 in the U.S. State pension systems are
running out of funds, so people save extra for their retirement.
Moreover, many affluent Europeans just don't want to spend their free
time shopping.

Residents of the 12 countries using the euro save 10.5% of their
disposable income compared with 0.8% for Americans, according to the
Organization for Economic Cooperation and Development. (The British,
who don't use the euro, are bigger spenders and save less than
Continentals.) In the past three years, the gap has widened. U.S.
consumers have increased their spending more than three times as fast
as euro-zone residents. This year, overall euro-zone consumption is set
to grow at only around 1.2%, the OECD says, compared with 3.6% in the
U=2ES.

"People have an urge to spend nothing," says Rolf Kunisch, chief
executive of Beiersdorf AG, one of Germany's largest makers of
household items, including Nivea skin creams. In the days when the
German economy was growing fast, "we had about 5% growth a year in
domestic sales. Now it's zero."

Weak consumption in the euro zone -- the world's second-biggest
consumer market after the U.S. -- means one less source of growth for
U=2ES. exporters. It has thus contributed to the ballooning U.S. deficit
in the trade of goods and services, and is weakening the dollar:
European companies that export to America are paid in dollars, which
they then sell to buy euros. But because Europeans aren't consuming as
many American products, U.S. exporters don't receive many euros to
balance things out. Eventually, the falling dollar will mean Americans
won't be able to afford as much from Europe, which will threaten
Europe's meager, export-reliant growth.

Much of the red tape is designed to preserve continental Europe's
quality of life. Europeans tend to see themselves as workers first and
consumers second, and they elect governments that protect them from
long, irregular work hours. Regulators here have limited price
competition between stores to stop out-of-town malls from wiping out
the small shops that enrich the character of European cities.

But low consumer spending is impeding Europe's already slow growth --
the region's economy will likely have expanded an annual average of
just 1.1% from 2002 to 2004, compared with more than 3% expected for
the U.S. Stagnant domestic demand is driving European manufacturers to
invest outside their own borders, where they can increase sales faster.
Beiersdorf, for example, recently expanded its factory in Shanghai and
launched its skin creams in Vietnam. "We will continue to live off
globalization, thankfully," says Mr. Kunisch.

Such moves hold back hiring and wage growth in Europe, and so further
discourage spending. The only way out of this cycle: shopping. "It is
time for you to consume," Jean-Claude Trichet, head of the European
Central Bank, told the citizens of the euro zone at a news conference
several months ago.

Anke Hemmann isn't ready to heed that advice. A psychologist from
Plauen, Germany, Ms. Hemmann thinks the country's state pension will be
severely reduced by the time she retires. As in much of continental
Europe, German pensions are almost entirely paid for by levies on
current earnings, instead of by investing money over time. But a low
birthrate will reduce the working-age population while the ranks of
pensioners are swelling. Experts say this will result in drastic future
cuts to pension payments.

"I'm not relying on there being anything," says Ms. Hemmann, 27 years
old. "If there is something, that's a bonus." So she puts 12% of her
disposable income in a life-insurance policy that will serve as a
private pension. That doesn't leave much for shopping, which -- like
many Europeans -- she's not that interested in anyway. She buys shoes
three times a year and an item of clothing roughly every six weeks.

Despite having a steady job, Ms. Hemmann doesn't like to spend with her
credit card. She mainly uses it for convenience when vacationing
abroad, and her current balance is zero. "I know it's probably bad for
the economy," she says of her prudent lifestyle, but adds: "Debt is
disreputable. I was brought up to spend only what I have."

Cautionary Tales

In France, the evening news repeatedly broadcasts features on the
dangers of over-indebtedness, and regulations discourage borrowing to
consume. For example, the French central bank requires credit cards to
display clearly the words "Carte de Credit," to distinguish them from
more popular, less-stigmatized debit cards, which draw directly on a
checking account.

"The consumer doesn't want to show to the retailer that he is paying on
credit," says Herve Kergoat, MasterCard International Inc.'s country
manager for France. "In France there is a culture strongly averse to
credit."

David Thesmar, an economics professor at the =C9cole Nationale de la
Statistique et de l'Administration =C9conomique in Paris, doesn't even
have a credit card. He and his wife want only enough money to meet
their spending needs, and he would rather spend his free time with his
kids than go shopping, he says. "I'm not a very big shopper," says the
32-year-old. "I don't feel bad when I buy cultural things like books or
CDs, but it feels bad to buy futile things, especially when I buy
clothes."

Even Europeans who want more consumer credit find it restricted. In
Belgium, people can borrow only as much as about $1,600, unless they
sign a lengthy written contract and their bank scrutinizes their debt
history. Most customers stick to the cap instead, which also applies to
overdrafts on bank accounts. "It's to protect the consumer from
himself," says Jacques Zeegers, secretary general of the Belgian
Banking Association.

Pictu
http://tinyurl.com/5wyx8
Caption:
Alex Ciecierski

As a result, while the average American spends more than $5,500 a year
using credit cards, the equivalent figure for Germany is only $64, and
for France just $30, according to Euromonitor International, a
market-research company.

In most of continental Europe, banking regulations don't allow
borrowing backed by home equity, as in the U.S. In Montclair, N.J.,
Alex and Gail Ciecierski's family home has more than doubled in value
since they bought it 13 years ago, and the Ciecierskis have taken out a
$205,000 home-equity loan. They used this and another mortgage to buy
three properties in Florida, entirely with borrowed money. With this
arrangement, Mr. Ciecierski, a 48-year-old technical manager at a
television studio, is financially secure even though he saves little
from his salary and the family spends more than he earns. His
savings-account balance is just $1,000, while his credit card is
$13,700 in the red. His wife Gail considers shopping "a sport," he
says. "I'm living the American dream: no cash in pocket."

But in Italy, for example, home loans are restricted to 80% of a
property's initial purchase price, and Italian law and banking practice
make it difficult to increase borrowing against the value of a house.

"I can't imagine that Italians would link their spending to capital
gains instead of their income," says Tito Nocentini, head of retail at
Banca di Roma. "When Italians think of home loans, they think of buying
a home. Unlike Anglo-Saxons, they don't think of doing it to buy
something else, like a car."

Luca Tardella, a 37-year-old statistician, bought a house in Rome five
years ago. Since then, its value has more than doubled. But he doesn't
like being in debt, and chose the shortest possible mortgage-repayment
time, 10 years, in case Italy reverts to its double-digit interest
rates of the past. He wouldn't want to take out home equity for
consumption even if his bank allowed it.

"If I consumed the capital gains today I wouldn't be able to use them
to buy a bigger house as my family grows," he says. "I don't have the
mentality of borrowing to consume. I buy things little by little from
the money I have, to preserve peace of mind. It was the way in my
family: Never owe a debt to anyone."

European policy makers have tried to boost consumer spending. In July,
France's parliament enacted a tax credit worth 25% of any interest paid
on consumer loans this year and next. Then-finance minister Nicolas
Sarkozy also cajoled supermarkets to reduce by 2% the price of hundreds
of branded goods from yogurt to shampoo. And Mr. Sarkozy proposed
loosening a French law that stops retailers from selling goods for less
than they paid for them -- but his plan only let them reduce their
prices by a limited amount, as he feared complete liberalization would
spark a price war favoring the biggest retailers. Despite all these
moves, French household spending has stalled.

The European Commission, the executive arm of the European Union, has
pushed unsuccessfully since 2001 for a liberalization of laws on sales
promotion, to cut through national rules that inhibit cross-border
competition. France, for example, bans promotional games like
lotteries, while Austrian law prohibits the advertising of free gifts
if they exert "psychic pressure to buy."

But national governments, which have the final say on pan-European
laws, couldn't agree on the proposed liberalization in September.
Objectors, such as France, claimed it would leave consumers vulnerable
to misleading offers.

Restricted Hours

European store hours are often restricted to protect staff from working
late. French labor law keeps most stores closed all day Sunday, and
they can only open for 10 hours on other days because staff can't be
required to work longer.

Over the past few years, vending machines offering milk, cereals and
toilet paper have sprung up on Parisian streets to meet a demand that
shops can't. In Germany, after years of tortuous debate between
government, retailers and unions, stores were in 2003 allowed to remain
open until 8 p.m. from Monday to Saturday, instead of 6 p.m. on
weekdays and 4 p.m. on Saturday as before.

But when Belgium's biggest supermarket chains demanded longer open
hours in the evenings last spring, retail unions threatened to strike,
and the chains gave up, says Frederic Lernoux, a policy adviser for
Belgium's small-enterprises ministry. "There is no more social life for
the self-employed if they have to open 24 hours a day to compete," says
Mr. Lernoux.

These laws stop Mr. Ivaldi, the Brussels shopkeeper, from staying open
until 10 p.m., as he would like to some nights, for clients who work
late.

He also wants to offer promotional packages, such as a suit and tie
with shoes, and discounts for goods that aren't selling well. But the
law forbids promotional discounts outside the official sales in January
and July -- and stores can't even advertise coming special offers in
the run-up to these sales.

Mr. Ivaldi's discounts even are limited during the authorized sales,
because the tax authorities expect him to sell his wares for an average
margin of 50% over purchasing cost. Belgium's finance ministry says the
rule is designed to simplify the calculation of value-added tax.

But even if retail restrictions were swept away, many Europeans would
carry on saving to supplement their future pensions -- Mr. Ivaldi among
them.

"If I had less sense, I would be a spender," he says. "I would love
that. I would go to boutiques and buy clothes, I would buy cars, I
would buy a sailing boat."

---- Sarah Nassauer in Paris contributed to this article.
http://online.wsj.com/article/0,,SB1...796265,00.html

"I would like to be more flexible," says Mr. Ivaldi. "Europe is very
paternalistic."

What a typical WSJ crock! Europeans get four, six, or even more
weeks of vacation each year. If an American tries to negotiate that
with his boss, he is deemed to have a bad attitude and is often laid-
off in the next cycle. Europe has many little businesses: wine bars,
classical CD stores, restaurants, etc. These small businesses could
not possible compete in the USA against the giants like Walmart due
to the tax structure and other laws favoring large businesses, no
matter what dubya may say about him favoring small businesses.
Europe is employee-friendly while the USA (and Japan and other
countries) are employer-friendly.


Pete

nospam wrote:
Europe has many little businesses: wine bars, classical CD stores,
restaurants, etc. These small businesses could not possible compete in
the USA against the giants like Walmart due to the tax structure and other
laws favoring large businesses, no matter what dubya may say about him
favoring small businesses. Europe is employee-friendly while the USA (and
Japan and other countries) are employer-friendly.

I don't follow. What is inherently more employee-friendly about policies
that favor small businesses?

miguel
--
Hit The Road! Photos from 32 countries on 5 continents: http://travel.u.nu

The secret of good economic life here in the US is to live with the Euro
attitude yet be able to partake of the expanse of commercial opportunities
available here in the US. I.E. low consumerism, less debt, but with the added
benefit of the low prices.
While I admit there is a loss of "flavor" in shopping at the giants verses the
small independent retailer, I do not need a small shop experience to buy a
toaster or some other retail item at a costlier price. I'll take my experiences
for such things into the restaurant/coffee shop/dining world however. And, one
wonders why/how the Euro method and philosophy extends into that same world in
Europe? How do they reconcile the limitation of hours/days of reatil sales with
the hours/days that are operated by the bars/brasseries/restaurants that stay
open far longer/later? When you consider the "employeee friendly" laws and
rules in the area of retail sales how can you ignore that there are also people
who work in the other area above that are also employees.

On Fri, 10 Dec 2004 15:11:20 GMT, "nospam" wrote:

"I would like to be more flexible," says Mr. Ivaldi. "Europe is very
paternalistic."

What a typical WSJ crock! Europeans get four, six, or even more
weeks of vacation each year. If an American tries to negotiate that
with his boss, he is deemed to have a bad attitude and is often laid-
off in the next cycle. Europe has many little businesses: wine bars,
classical CD stores, restaurants, etc.

Surely the US does too, even if the stores in the US are franchises,
they're still small retail businesses. In the non-retail sector, I'm
sure you'll find more small businesses than Europe on average.

These small businesses could
not possible compete in the USA against the giants like Walmart due
to the tax structure and other laws favoring large businesses.

I'm pretty sure Tesco in the UK is more dominant player than walmart
is in the US. Are you over-simplifing the Europe and the US?

Jim.

Dans l'article ,
(Treemoss2) a écrit :


The secret of good economic life here in the US is to live with the Euro
attitude yet be able to partake of the expanse of commercial opportunities
available here in the US. I.E. low consumerism, less debt, but with the added
benefit of the low prices.
While I admit there is a loss of "flavor" in shopping at the giants verses the
small independent retailer, I do not need a small shop experience to buy a
toaster or some other retail item at a costlier price. I'll take my
experiences
for such things into the restaurant/coffee shop/dining world however. And, one
wonders why/how the Euro method and philosophy extends into that same world in
Europe? How do they reconcile the limitation of hours/days of reatil sales
with
the hours/days that are operated by the bars/brasseries/restaurants that stay
open far longer/later? When you consider the "employeee friendly" laws and
rules in the area of retail sales how can you ignore that there are also
people
who work in the other area above that are also employees.

When I lived in the US (until 1974), I had a basic shopping philosophy. For
standard goods, I went to the supermarket. Standard goods were laundry
detergent, soap, dog food, toilet paper, paper towels, canned goods, etc.
For real food - fresh meat, fresh vegetables - I went to small commerces. I
had a butcher who cut lamb for stew because he enjoyed doing it, and who had
real calves' liver. The grocer picked out his produce himself.

But little by little, the supermarket drove out the small merchants. The
grocer I mentioned above died, the butcher then retired. Their store became
an antique shop. I was stuck with the supermarket, and I discovered that
while the price was less, so was the quality. I was willing to pay more for
better quality. But apparently most people in my suburb were not. As the
nearest real city, as opposed to an urban sprawl, was over an hour away, I
was out of luck.

Loss of "flavor"? For sure. In the food. Here in Paris, I still have a
choice of small merchants. And this remains true in small towns as well.
There is a small town east of Paris called Bar-sur-Aube, which I visit every
two weeks. The population is 6500. There are two supermarkets, but there
are also a number of small merchants, butchers, bakeries, etc. which seem to
have plenty of customers. It is a question not of mere price but of taste
and quality which have not been lost in Europe.

Donna Evleth

"nospam" wrote in message
nk.net...
"I would like to be more flexible," says Mr. Ivaldi. "Europe is
very
paternalistic."

These small businesses could
not possible compete in the USA against the giants like Walmart due
to the tax structure and other laws favoring large businesses, no
matter what dubya may say about him favoring small businesses.
Europe is employee-friendly while the USA (and Japan and other
countries) are employer-friendly.

It might interest you to know that it's easier for POTUS to say "small
business" than you think! The Government definition of a "small
business" is one with fewer than 500 employees!


--
James V. Silverton
Potomac, Maryland, USA

nospam wrote:
Europeans get four, six, or even more
weeks of vacation each year. If an American tries to negotiate that
with his boss, he is deemed to have a bad attitude and is often laid-
off in the next cycle.

I had four weeks' vacation most of my working life. When I had three,
I often took six. When I had four, I sometimes turned them into nine
by taking the vacation I earned last year in December and the
vacation I earned this year in January. We had, during those months,
holidays amounting to 4.5 days: Nine weeks!
__________________________________________________ ___________
A San Franciscan who's stickin' t'the union!
http://geocities.com/dancefest/ http://geocities.com/iconoc/
ICQ: http://wwp.mirabilis.com/19098103 IClast at SFbay Net

In article ,
(Miguel Cruz) wrote:

nospam wrote:
Europe has many little businesses: wine bars, classical CD stores,
restaurants, etc. These small businesses could not possible compete in
the USA against the giants like Walmart due to the tax structure and other
laws favoring large businesses, no matter what dubya may say about him
favoring small businesses. Europe is employee-friendly while the USA (and
Japan and other countries) are employer-friendly.

I don't follow. What is inherently more employee-friendly about policies
that favor small businesses?


The article talked about the limited hours retailers could be open, so
that retail employees wouldn't have to work long hours.

It also talked about price controls. The hallmark of Walmart is
unremitting price cutting, which drives out smaller businesses. The
problem is, Walmart doesn't pay well (a lot of Walmart employees are on
public assistance programs like food stamps).

So preventing the Wal Mart effect is probably good. That is why you
can't find Carrefour until you get to the outskirts of Paris. Then
again, I don't think there are Walmarts in Manhattan either.

In article ,
(Miguel Cruz) wrote:

nospam wrote:
Europe has many little businesses: wine bars, classical CD stores,
restaurants, etc. These small businesses could not possible compete in
the USA against the giants like Walmart due to the tax structure and other
laws favoring large businesses, no matter what dubya may say about him
favoring small businesses. Europe is employee-friendly while the USA (and
Japan and other countries) are employer-friendly.

I don't follow. What is inherently more employee-friendly about policies
that favor small businesses?


The article talked about the limited hours retailers could be open, so
that retail employees wouldn't have to work long hours.

It also talked about price controls. The hallmark of Walmart is
unremitting price cutting, which drives out smaller businesses. The
problem is, Walmart doesn't pay well (a lot of Walmart employees are on
public assistance programs like food stamps).

So preventing the Wal Mart effect is probably good. That is why you
can't find Carrefour until you get to the outskirts of Paris. Then
again, I don't think there are Walmarts in Manhattan either.