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Florida's European Connection
Florida business people have reason to watch the events of the next three years in Europe with concern. But for now they can be relatively comfortable with how things are progressing.
Why? Because England and Germany are faring better in Europe's new economic climate than other countries. And when it comes to the Sunshine State, England and Germany matter a good deal more than the rest of Europe.
European tourists account for 31% of all international visitors to the state, with England and Germany ranking first and second, respectively.
Anecdotal evidence - a proliferation of British-owned pubs and other small businesses throughout the state, real estate purchases in the Sarasota-Bradenton area by Germans, etc. - also suggests that significant numbers of British and German investors find the state an attractive place to invest their money. Bob Hoffman, British Consul in Miami, says that one study of the start-up of British businesses in Florida shows a failure rate one-half that of comparable investment in England.
Many Florida business people need to monitor the amount of pressure that economic integration puts on the European middle class. The average unemployment rate for the European Community is already 11%, which amounts to 18 million people out of work. And the implementation strategy for the new currency - now known only as the European Currency Unit (ECU) - will likely add to the pressure. Most European countries have run big budget deficits to pay for generous social benefit programs, so they will have to cut spending, raise taxes or both.
One expected result - less disposable income for Europe's middle class - could be bad news for Florida in terms of foregone Florida vacations and investments. The loss of middle-class income may be offset, however, because the new ECU is likely to be stronger against the dollar than many European currencies are today. In the future, for example, the new currency probably will buy more in Orlando than the French franc does now. In addition, Europe's economic reorganization may redistribute income upward among wealthier people more likely to vacation and invest abroad.
Moreover, Florida's two biggest customers in Europe seem well positioned to weather the transition. In England, during the Thatcher years, the government cut back many government benefits and deregulated or privatized many industries. The British economy has emerged heartier and more competitive, with an 8% unemployment rate that's the lowest in Europe. If a strong unified currency makes British goods more expensive internationally, British industry appears to be flexible enough to keep the product prices competitive without massive layoffs.
The German economic machine is likewise healthy: Even with a 10% unemployment rate, it's still the strongest in Europe. Another plus is that Germany shouldn't have to raise interest rates since its mark is the benchmark for the new ECU. But Germany's middle class will suffer somewhat from the predicted cutbacks in government spending, particularly on unemployment compensation. There may be fewer Germans on Florida's beaches.
Countries where larger percentages of the population work in the public sector, such as France, Italy, the Netherlands and Spain, will likely suffer much more than England and Germany from the economic unification of Europe - but impact Florida much less.
Frederick R. Strobel is Selby Professor of Economics at the University of South Florida's New College campus in Sarasota.
Business Beat - Week of May 3rd
