Archive for December 8th, 2011

Europe: Stronger than Ever?

An interesting opinion piece in Der Spiegel argues that all the caterwauling and angst about Europe coming apart if the Euro crisis isn’t solved overlooks profound and fundamental strengths in the European economic and political system.    Although the piece isn’t on the English language version of Der Spiegel, here is the German version by Florian Gathmann and Philipp Wittrock.

Their argument is straightforward.  Despite the current crisis, European strengths far outweigh their weaknesses.

1)  The EU’s economy is larger than that of the US, and it’s total debt burden is less — 82% of GDP vs. 100 % of GDP here.  Moreover, while most of the EU has their debt under control, the US doesn’t.    Perhaps most importantly, the US let its industrial base deteriorate and at this point Europe’s productive capacity remains relatively strong.   The EU has been criticized for working to protect industries that many said were obsolete due to third world competition, but now this is widely seen as a strength.

2) States still want to join the EU.  Croatia is likely to join in the middle of 2013, negotiations are underway with Iceland and Turkey, Montenegro and Macedonia are candidates for admission, while Serbia and Albania have submitted applications.   States also still seek to join the Eurozone — when this crisis gets resolved and the Euro emerges stronger, it will be more rather than less attractive.

3)  Foreign policy cooperation is stronger than ever.  Germany and France retain a tight partnership and have managed to work very well with smaller states, avoiding a major big state vs. small state rift.

In short, the EU’s economy is in good shape, the political institutions are attractive and working well, and the continent is more cohesive and in agreement on core issues than perhaps ever before.   The crisis is real, but crises do not determine the long term future: the fundamentals do.

Are they right — is the EU rising rather than falling?    I believe so, and primarily because the EU has managed to bring together diverse economies in an ever closer union.    Since 1999 the EU has created more jobs than the US and its leadership on green technology has put them ahead of the US.   By signing and meeting the Kyoto accord goals they helped their economy rather than hurt it,  and are now in a position to pursue greater business with China, which is taking its environmental problems more seriously than ever.

The US has fallen behind because people started to believe that government didn’t have to do anything to keep the country successful, that the market could do it all.   For example, in the EU the issue of chemicals in food, skin products and other consumables has been a huge issue, while the US has more or less ignored the dramatic growth of chemical additives to a variety of products, presumably relying on the companies to test it themselves.   The logic is that the companies won’t put dangerous stuff out there because the market will punish them.   But that assumes the public knows what’s going on and why — if people don’t know which medical problems are caused by a particular skin cream they’ll keep buying it.

General concern for the environment, families with children (EU states help support child care services and other help for young families — including generous maternity/paternity leave), and other social policies create living standards higher than those in the US.   The US has more overall money, but it’s less evenly distributed.

By not giving into ideological dogma, the EU’s conservatives and Social Democrats are able to work together to solve problems.   It’s not impossible to raise taxes on the wealthy.   Retirement ages have been increased.   Pensions have been modified and cut.   Moreover there is a realism that these changes will have to continue to make sure that the debt reduction that’s been started continues.   The US by comparison is politically dysfunctional, as last year’s debt ceiling fiasco demonstrates.

Geo-politically Europe is in a good position to build partnerships with China and Russia.    While the US still tries to push around other states, with China-bashing increasingly the norm, including numerous threats at the last Republican debate, the EU recognizes China’s foreign policy style.   The Chinese don’t overtly try to counter another state’s interests.   It will trade with any state it wants (including Iran and Venezuela, which upsets the US), but it doesn’t try to push states around.   The EU respects that and most European states treat China with similar respect.   That’s why China is increasing its investment in Europe and is seen by some as an important part of the EU’s economic future.

The markets seem to agree.   Despite the concern about the Euro, the currency — which debuted at $1 per Euro, with a hope to maintain that level — now trades at $1.33 per Euro.   That’s off its highs, but still strong given the circumstances.   At least relative to the dollar, there is still faith in the Euro.

This doesn’t mean Europe doesn’t have problems; no part of the world is without serious issues in these times of intense change.   The issue of immigration and assimilation of foreigners is always touchy, as Europeans still tend to have an ethnicity-based view of state identity.   An American is any American citizen; that is legally true in Europe, but many see who is an Italian or German, for instance, in terms of blood.

Europe’s changing demographics create problems in terms of how to pay for health care and pensions for an increasingly older population.   Yet it’s easy to exaggerate the problem.   Family friendly policies have helped many countries increase their birth rates, and a mix of immigration and increased technological production methods can overcome slow population growth.   Moreover, a smaller population is ultimately more environmentally and economically sustainable.

It could be that this crisis will be remembered not as the death of the EU and the Euro, but a time when Europeans leapt forward to meet the challenges and start to achieve what the founders dreamed of back when the Messina Conference opened in 1956.   Tighter fiscal regulations to support monetary union, increased cohesion across the continent, closer foreign policy cooperation, and through subsidiarity a politically viable approach to a new era.   Rather than state centric politics decision making will be spread out, with EU wide policy made at the supranational level, and most of the day to day policies that affect peoples’ lives at the local or regional level.

A lot still has to be done.   The Euro crisis has to be overcome, something likely to be a gut wrenching affair not solved in one summit.    But the underlying strength of Europe should not be under estimated — the sun is not about to set on western civilization!