Europe's New Model Economy

CAMBRIDGE: The world's economists are scurrying about, trying to discover and explain the reasons for America's record boom. Despite eight years of growth, no signs of accelerating inflation are to be found in the US. Moreover, no one in America seems to care about traditional economics; its all the ‘new economy', internet or die.

Traditional US investors are at a loss to explain why a company earnings are suddenly a poor way to predict what stocks will be hot and which likely to fail. Any company without a ".com" in its name or future seems doomed. Establish a new economy link and you are bound to soar, stick to the "old economy" ways and your stock is trash. Gurus of the old school claim that all this profitless prosperity cannot last; soon, if not very soon, the stock market will get back its senses. When that happens, the glamour of America's long boom will vanish, the notion of the "new economy" will be as forgotten as last year's fashions.

There is now an entirely new angle to all this that is worth contemplating; namely that America is not so unique, that Europe is joining the new economy game. Perhaps only Europe's stock markets are the only ones participating yet, but that is a start.

Why does Europe seem hesitant? The Euro is weak; it has none of the glamour hoped for at its launch last year. Besides, European governments remain defensive: no important labor market reforms nor initiatives aimed at deregulation are underway. True, Germany is putting on the books an important tax deal that will allow large financial institutions to sell-off their vast share holdings in the corporate sector without punitive capital gains taxes. But, at best, Europe's governments have only consented to allow rationalization in their banking industries and some cross border mergers.