What’s really wrong with Europe?

By Edward Hadas
March 14, 2012

The euro zone debt crisis shows that something is seriously wrong with Europe. But what is it?

Most financial professionals think the problem is economic. They have long considered continental Europe something of a mess – slow GDP growth, inept governments, smothering regulation and a culture that doesn’t “get” markets. European residents seem equally gloomy, especially about the economy. In the most recent Eurobarometer survey, 71 percent of respondents did not expect the crisis to be over two years hence.

The economic worries of both financiers and citizens are misplaced. Even if the slow patch does last a few more years, the European economy will continue to do what a modern economy is supposed to do. European consumers are basically as well off as Americans after adjusting for longer European holidays and different lifestyle choices. There is probably greater justice in the distribution of incomes and consumer goods in Europe than in the United States. The euro zone’s low trade deficits – less in total since 1990 than the United States ran in the last six months – suggest that Europe is globally competitive. Europe probably has a worse unemployment problem than the United States, but national governments are belatedly trying to remedy that.

Where Europe is really weak is not in economics but politics. A lack of political cohesion turned relatively minor financial problems – one small reprobate government (Greece) and two small careless ones (Portugal and Ireland) – into a disproportionately large struggle to avoid a devastating financial meltdown. Despite the risk, politicians and bureaucrats spent years bickering. They may have finally found the necessary toughness and solidarity, but there are enough unanswered questions to suggest that further crises are a lively possibility.

The indecision and discord needs to be kept in proportion. Politically, Europe is far more stable than it was a century ago, when a much smaller trigger set off the First World War. It is more unified – fiscally and financially – than it was in that war’s aftermath, when the anti-solidarity policy of reparations and the anti-flexibility of the gold standard wreaked havoc.

Still, Europe could do better. I suggest a three-pronged effort to make the region stronger.

The first is supposedly underway: balanced national budgets in normal economic times. An earlier effort to mandate this, the Stability and Growth Pact, failed, but the intervening crisis may have concentrated minds and strengthened resolve. If it hasn’t, then the euro project is liable to topple over as soon as economic challenges arrive.

Second, national politicians and the European Central Bank should agree – and state it publicly in no uncertain words – that the fiscal compact implies that the cost of future national fiscal failures will be shared between debtor and creditor nations. There will always be disputes about how to apportion the losses, but those can be resolved if everyone accepts the principle of shared responsibility. A bad loan is a sign that both sides messed up. A multi-country currency union cannot survive without solidarity among its members.

Third, Europe needs to make the economy the servant of something greater, something with more political resonance than a prosperity pact. A merely materialist agreement will always be vulnerable to economic downturns.

Half a century ago, when the predecessor to the European Union was founded, there was a good reason to emphasise economic unity: other sorts of multi-national convergence were much more challenging. Europe is not like the United States, which can boast of a single “American way of life” both culturally and politically. (U.S. states’ rights were effectively crushed 150 years ago in the Civil War.) Nor is Europe like China, which established a national language and culture three millennia ago.

On the contrary, European nations have basically been moving apart for centuries, developing their own national languages and cultures. The nations often behaved like teenage gang members, convinced of their own superiority and always up for a mutually destructive fight.

After the biggest fight, World War Two, the peacemakers followed their profession’s best practice: build trust by focusing on a common effort in the least controversial area – the economy. It has worked, although almost every step has been difficult. The last step, the merger of monetary and fiscal policies, proved traumatic.

But after 60 years of economic success, it should be clear that greater unity need not destroy national diversity. Italians may never be as much like Germans as New Yorkers are like Californians, or as Shanghainese are like Beijingers. But Europeans should be able to find enough common ground – if only as an entity able to hold its own against the United States and China – to give the EU stronger support than mere economic self-interest. If not, there really will be something wrong with Europe.

14 comments

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Posted by matthewslyman | Report as abusive

My dream is of a stronger and more unified Europe.

> “Europe needs to make the economy the servant of something greater, something with more political resonance than a prosperity pact.”

Very true. My concern is that Europe has been built on the wrong philosophical foundation. Despite its rich cultural heritage, the European Union created its foundational documents – European Bills of Rights, as it were – based on the brief musings of some ill-qualified focus-groups. These constitutional documents resemble shopping lists of bullet-points compiled from the political shopping-lists of various constituent peoples, without any thought for how to reconcile the contradicting wishes of various opposing groups… So it’s no wonder we’re getting self-defeating and inconsistent results such as:
http://www.slyman.org/blog/2010/04/equal -opportunities-vs-duty-to-conscience/

A lot of this trash will need to be dumped in the trash-can, before we can build a truly unified Europe that everyone can accept, support and claim as their own.

Posted by matthewslyman | Report as abusive

You are only half right. Economically Europe is as strong as it needs to be. But blaming European politicians is just too easy. Are they really any more dysfunctional than the US variety? Take a look at the Chinese leadership and the sacking of Bo Xilai?

the real problems is deeper. It is cultural. With a promise of a German salary many people would move hundreds of miles across America. But the move from Spain or Italy or Greece to North of the Alps covers a much greater distance.

The best thing Europe could do is reinstitute Eurorail. Double up on the erasmus programme. Bite the bullet and declare English as the proper lingua franca. Unless Europes citizens perceive something more substantial in common with their peers across the border, there can be no solution. Europeans think and consequently, vote nationally. Therefore its politicians are national politicians.

Posted by Dafydd | Report as abusive

@Dafydd re: English as lingua franca.

the English spoken by european politicians must be the worst in the world.
example: Ollie Rehn…
like this: We-a have-a a good-a start-ta on-a the bail-out-ta and there-a is-a nothing-a wrong-a…..best entertainment I watched until I realised it was a “top”-european politican..what a joke-a.

Posted by Willvp | Report as abusive

My line by line refutation of “What’s really wrong with Europe”.

Most of my comments are in parentheses, following the lies.

I know Reuters won’t allow this to post because they can’t afford to print the truth.

————————————————————————————–

What’s really wrong with Europe?

The euro zone debt crisis shows that something is seriously wrong with Europe.

But what is it?

Most financial professionals think the problem is economic.

They have long considered continental Europe something of a mess – slow GDP growth, inept governments, smothering regulation and a culture that doesn’t “get” markets.

European residents seem equally gloomy, especially about the economy. In the most recent Eurobarometer survey, 71 percent of respondents did not expect the crisis to be over two years hence.

The economic worries of both financiers and citizens are misplaced.

Even if the slow patch does last a few more years, the European economy will continue to do what a modern economy is supposed to do.

European consumers are basically as well off as Americans after adjusting for longer European holidays and different lifestyle choices (Actually, no matter how you look at it, the Europeans a far better off than Americans, since we have no social programs at all).

There is probably greater justice in the distribution of incomes and consumer goods in Europe than in the United States (A gross understatement because there is NO justice at all for anyone in the US if you are not wealthy).

The euro zone’s low trade deficits – less in total since 1990 than the United States ran in the last six months – suggest that Europe is globally competitive (True, which we are not, thanks to the wealthy taking over the government).

Europe probably has a worse unemployment problem than the United States (if you count ALL those unemployed in the US, we are undoubtedly far worse off in unemployment than ANY European country, plus there is no safety net, so this is not a valid comparison) but national governments are belatedly trying to remedy that (unlike the US government which is attempting to ignore it).

Where Europe is really weak is not in economics but politics (at least the European nations are not in total “gridlock” like the US politicians, who are more interested in fighting over the carcass of our economy than anything else).

A lack of political cohesion turned relatively minor financial problems (– one small reprobate government (Greece) and two small careless ones (Portugal and Ireland) – into a disproportionately large struggle to avoid a devastating financial meltdown.

Despite the risk, politicians and bureaucrats spent years bickering (A lack of political cohesion has turned what could have been limited to a major recession, into a major depression once they finish sucking this country dry).

They may have finally found the necessary toughness and solidarity, but there are enough unanswered questions to suggest that further crises are a lively possibility (at least the Europeans recognize the problem and haven’t given up completely, as we have in the US).

The indecision and discord needs to be kept in proportion (keeping it in proportion means forcing the wealthy class to take its losses as it should).

Politically, Europe is far more stable than it was a century ago, when a much smaller trigger set off the First World War (Actually, this is a blatant lie, since a century ago there was absolutely no hint of any major war on the horizon. It was an era of unprecedented peace and prosperity — there had not been a war on the European continent since 1870, which was fought solely between Germany and France — which is why everyone was shocked by the “Great War” in 1917.

Revisionist historians try to say the reasons for the war were too complex to assign any particular reason for it, but the ugly truth is the entire reason for the war was a wealthy family dispute between England and the belligerent half-wit member of that same family that had recently ascended to the throne in Germany).

It is more unified – fiscally and financially – than it was in that war’s aftermath, when the anti-solidarity policy of reparations and the anti-flexibility of the gold standard wreaked havoc (the “anti-solidarity policy of reparations” were forced upon Germany alone because, thanks to the massive extension of unlimited credit from the US wealthy (which served to extend to war to four full years of unbelievable horrors), the British could not pay their war debt owed to the US wealthy. They tried to do so for awhile, using Germany as “collateral”, but eventually gave up and went back on the gold standard in 1925, thus causing the US stock market crash in 1929, which was built entirely on the bubble from war debt, and the following Great Depression that lasted until Germany found the strength to resume fighting against the wealthy class again in 1939).

Still, Europe could do better (True, they could force the wealthy to pay for what they have done).

I suggest a three-pronged effort to make the region stronger.

The first is supposedly underway: balanced national budgets in normal economic times (a balanced national budget is an economic mistake, and not even the US can do that in “good times”). An earlier effort to mandate this, the Stability and Growth Pact, failed, but the intervening crisis may have concentrated minds and strengthened resolve (a balanced budget during times of crisis is a guarantee of economic collapse, and is a repudiation of Keynesian economics, which the wealthy hate). If it hasn’t, then the euro project is liable to topple over as soon as economic challenges arrive (which would be the best thing for their economies).
Second, national politicians and the European Central Bank should agree – and state it publicly in no uncertain words – that the fiscal compact implies that the cost of future national fiscal failures will be shared between debtor and creditor nations (1) notice fiscal failures are NOT to be shared by the wealthy class, and (2) a call for a National Europe, so that the wealthy class would have less risk, but which cannot exist without an enforcement mechanism, and which is not possible for the Europeans, since they are sovereign nations, not states like in the US) . There will always be disputes about how to apportion the losses, but those can be resolved if everyone accepts the principle of shared responsibility (the wealthy do not understand the concept of “responsibility” as promoted by Capitalism. Those who gamble and lose, should be responsible for taking the haircut, not anyone else). A bad loan is a sign that both sides messed up (True, a bad loan means both sides have messed up, but the investor who has control of the funds should have done due diligence, and not loaned the money, so they should take the loss. To do otherwise means an investment bubble as they continue to pour money into an economy without regard to risk. That is against all free market principles). A multi-country currency union cannot survive without solidarity among its members (meaning of course a Federal Europe, which is not possible. Clearly, THAT is the next goal of the wealthy beyond unlimited bailouts forever).
Third, Europe needs to make the economy the servant of something greater, something with more political resonance than a prosperity pact. A merely materialist agreement will always be vulnerable to economic downturns (This is simply a restatement of the argument for a Federal Europe. And since when do the wealthy look at anything except through the lens of a “materialist agreement”. If they didn’t they wouldn’t be the major reason the EU is in trouble, since the wealthy refuse to negotiate in good faith with the debtor nations).

Half a century ago, when the predecessor to the European Union was founded, there was a good reason to emphasise economic unity: (So it is time to face the truth of a failed experiment, and break up the union, before the wealthy manage to do even more damage).

other sorts of multinational convergence were much more challenging (not merely challenging, but impossible even under ideal conditions. To think about a “multinational convergence” now, is stupid beyond belief.

Europe is not like the United States, which can boast of a single “American way of life” both culturally and politically.

A single “American way of life”, whatever that is beyond a mere slogan, has NEVER existed in this wretched Plutarchy (i.e rule by the wealthy class).

(U.S. states’ rights were effectively crushed 150 years ago in the Civil War.) A rare wealthy admission that the Civil War was NOT fought to free the slaves, but had an economic basis.

Nor is Europe like China, which established a national language and culture three millennia ago. (And whose culture was basically destroyed by wealthy European greed beginning three hundred years ago.

The whole underlying reason was that China told the Europeans they weren’t interested in European trade goods, and wanted hard cash, meaning silver. That demand resulted in the English economy being destabilized by the drain of silver to China, so the English came up with an alternate solution — drugs, in the form of opium. When the Chinese resisted, the British attacked them in the Opium Wars.

Yes, it really is as simple as that.

The British had no problem destroying a three millennia old culture to satisfy their greed when the Chinese refused to trade with them on any other basis than cash. This, of course, opened the door to other European nations, who wanted in on the scheme.

While European nations have conveniently forgotten, the Chinese remember all too well, since the result was prolonged civil war and communism under Mao that nearly destroyed the country in the late 20th century. This isn’t ancient history for the Chinese.)

On the contrary, European nations have basically been moving apart for centuries, developing their own national languages and cultures. (Right, which is normal and natural — and I thought the wealthy were promoting multiculturalism because it helped them to globalize the world in order to increase their profits and keep down dissension.)

The nations often behaved like teenage gang members,
convinced of their own superiority and
always up for a mutually destructive fight.

(Oops! A bit of wealthy class superiority showing here. If this isn’t politically incorrect, I don’t know what is.

Actually, the same description would apply to the wealthy-dominated US as well.)

After the biggest fight, World War Two, (the SOLE cause of which was wealthy class greed after WWI) the peacemakers followed their profession’s best practice: build trust by focusing on a common effort in the least controversial area – the economy.

It has worked, although almost every step has been difficult.

The last step, the merger of monetary and fiscal policies, proved traumatic.

But after 60 years of economic success (for the wealthy class only), it should be clear that greater unity need not destroy national diversity (an appeal to see the world as the wealthy do, just one big global economy).

Italians may never be as much like Germans as New Yorkers are like Californians, or as Shanghainese are like Beijingers.

But Europeans should be able to find enough common ground – if only as an entity able to hold its own against the United States and China (ignoring the fact the US can’t hold its own against China) – to give the EU stronger support than mere economic self-interest (a reference to the new measure of success being touted — provided you are not wealthy — which is “happiness”, and no I am not kidding. The wealthy use GDP to measure wealth, but now want everyone else to measure their well-being by using “happiness” as a measurement, which of course excludes money, since money can’t buy happiness).

If not, there really will be something wrong with Europe. There IS something wrong with Europe, and that is that they have started to listen to the wealthy “advice”.

Posted by PseudoTurtle | Report as abusive

Why do you bother carrying articles by this moron, who clearly isn’t qualified to express an opinion on economic issues?

Posted by PseudoTurtle | Report as abusive

Using the USA as some sort of paradigm is very short sighted.

America is coming apart, socially and politically. We currently have a larger proportion of immigrants than at any time since well before the Revolutionary War. Established groups, let’s say ones in the third or greater generation of residence, are coming apart and do not have geographic cohesion in most instances. There is little use in comparing New Yorkers to Angelinos. Ethnicity, race, economic class and sex are everything.

The political elite in Washington may think themselves unified and in consensus, but that result comes from the systemic exclusion of most of America’s groups. They are alienated from the country and are so arrogant they do not even know it.

This is not a model for anyone. Change without plan is rampant here, as chaos overtakes the political rhetoric available to the ruling elite. Europe seems in better shape than the USA.

Posted by txgadfly | Report as abusive

For all its history as the most violent continent in history, Europe has been a beacon for reconciliation and political stability at least since the end of WW2. The EU is a political project which, while devoid of sexiness, could possibly end the spectre of war in Europe once and for all. Please read my blog article which elaborates on the same.

http://www.themadmadathil.com/The_Mad_Ma dathil/Home/Entries/2011/6/22_Save_the_E U_for_the_World!.html

Posted by KrishM | Report as abusive

The noble European concept of the welfare state with greater income equality and higher quality of life is doomed to failure when demographic trends imperil the ability of governments to provide the promised benefits. In Europe’s case the basic population decline issue is compounded by massive immigration from cultures that do not want to accept the mores of European society and are content simply accepting benefits because that quality of life is still much higher than in the respective homelands. It must be noted that during previous immigration waves into Europe , the welfare state did not exist , immigrants had to sink or swim in a less nobel Darwinian fashion and assimilation and integration were unsurprisingly far smoother.

There is a lot to criticize in the American system in terms of income equality but it is no accident that the absence of a welfare state propels immigrants into integrating and finding a way to survive rather than simply soaking the system.Also, what good are Europe’s lofty ideals when many emerging Asian nations in particular where unfortunately authoritarianism may currently be the only way to feed the people and this even more Darwinian approach results in longer workdays(no one striking over having to work more than 35 hours per week) but greater economic growth.

Darwinism is about survival of the fittest and there is cruelly no compassion for those who can’t help themselves. The unfortunate result of the welfare state is that people default on personal responsibility for their lives; the state will always provide. Guess which system “wins” and has throughout history EXCEPT when demographic trends were favorable or in small culturally homogeneous states.

Posted by washu | Report as abusive

The noble European concept of the welfare state with greater income equality and higher quality of life is doomed to failure when demographic trends imperil the ability of governments to provide the promised benefits. In Europe’s case the basic population decline issue is compounded by massive immigration from cultures that do not want to accept the mores of European society and are content simply accepting benefits because that quality of life is still much higher than in the respective homelands. It must be noted that during previous immigration waves into Europe , the welfare state did not exist , immigrants had to sink or swim in a less nobel Darwinian fashion and assimilation and integration were unsurprisingly far smoother.

There is a lot to criticize in the American system in terms of income equality but it is no accident that the absence of a welfare state propels immigrants into integrating and finding a way to survive rather than simply soaking the system.Also, what good are Europe’s lofty ideals when many emerging Asian nations in particular where unfortunately authoritarianism may currently be the only way to feed the people and this even more Darwinian approach results in longer workdays(no one striking over having to work more than 35 hours per week) but greater economic growth.

Darwinism is about survival of the fittest and there is cruelly no compassion for those who can’t help themselves. The unfortunate result of the welfare state is that people default on personal responsibility for their lives; the state will always provide. Guess which system “wins” and has throughout history EXCEPT when demographic trends were favorable or in small culturally homogeneous states.

Posted by washu | Report as abusive

Economics and politics meld to become an inextricable suicide pact when we foolishly demand or allow our leaders to structure an absurd “Safety Net”, i.e., promises that can only be sustained, if at all, in economic peaks. Such macro fiscal experiments must be managed with the skill of a neurosurgeon to create an evergreen sustainable money pot to keep promised entitlements flowing. I’ll leave to the readers to judge if EU poloitical leadership has attained that level (the US?). After all, with high tax burdens, people are justified in believing they are entitled to some cushion in bad times! If not, what’s the purpose? But when politicians mix entitlement folly with the added anchors of counterproductive labor laws, exceedingly high income and VAT taxes and lax controls, AND no surplus rainey day funding in good times, the ill advised agenda backfires to result in a fiscal disease akin to gangrene. Unless treated quickly with drastic measures, the patient/victim dies. But in a weak condition, that medicine is tougher to swallow. If we know anything, even politicians should know that economic cycles follow each other like the sun and moon. Yet many, like the Grasshopper, blissfully allow them to ignore this reality; as long as we have our wonderful “Net”. Politicians have no incentive to dose the prudent but unsavory medicine. Nor do the Net beneficiaries wish to swallow it – or even taste it. But when the bad economic cycle hits with high unemployment etc., how much additional taxes can be raised if people have no jobs? Can we continue to borrow from others to pay for the mess WE have created? The only alternative left is disentigration (amputation) of the Net – causing severe but self inflicted societal fractures while the Pols who created the mess retire to their country villas. Yet even as this unfolds, the political lunacy is to impose even more taxes, hoping the downward cycle will turn and rescue them from their idiocy. But when the tax and borrowing lifeline is exhausted, even the misguided Grasshoppers will comprehend the dim future of their illusion. The victims may survive this time but unless and until we amputate entrenched notions of safety without effort, continued well being without conservative fiscal policy, the affiction will persist. As civilized societies, we pride ourselves in our Net but just as there’s no free lunch, entitlements come at a high cost. The combination of rich medical, education and pension promises for even those who contribute little, a shorter work week and early retirement, produce a high bill. For many in the EU, that bill has arrived like an unwanted guest. Call that guest Mr. Economics or Ms. Politics, to this commenter, what’s the bloody difference? Look in the mirror.

Posted by porbit28 | Report as abusive

This isn’t about Europeans just making nice and getting along. They have very serious economic problems for which there are no good solutions. The unmanagable debt levels are the result of many years of failed domestic policy that even predates the EU. There is no way that the Germans will throw money at “club med” for the next decade or two. The Germans have benefitted handsomely from the economics of the euro, but they will walk away if the only other alternative is to subsidize their weak neighbors. This is simple economic self preservation. Unfortunately, the euro is doomed to outright failure or at best a substantial reduction in membership. The US isn’t in much better shape. Our date with economic upheval will come sometime after Europe’s. These problems are beyond the reach of politics.

Posted by gordo53 | Report as abusive

The writer is mostly correct when he implies that the Stability and Growth Pact was not sufficiently rigorous in establishing “rules”, for lack of a better word, or procedures for regulation of national economies within a framework of Europe-wide solidarity. It was just too loose. What is missing from this essay is how to get there from here. The crushing austerity that is imposed on the south, principally by the German/neoliberal cabal that runs the ECB and the European Commission will make things worse and ultimately fail. As Wolfgang Munchau, Yanis Varoufakis, and other many other economists have argued – what Europe needs is mechanism/s to re-establish growth in the periphery countries. Such a mechanism could be easily be constructed from existing institutions by bringing in the European Investment Bank to work with ECB, but is being ignored by policy makers who are quite seriously intent on “labor market reforms” which means, basically, reducing wages of working people throughout the EZ and destroying Europes model of social democracy. “Structural reform” also includes imposing on taxpayers the catastrophic losses of all of Europes biggest banks. Quite a world!

Posted by okiefarmer | Report as abusive

Is this thesis about Europe of the United States?

Posted by anluk | Report as abusive