50 years of 'Euro-pia' socialism
When your economy fails, so does everything else. Prosperity, wealth, trade, technology and profit accumulation dictates a lot in the structure of the political-economy. Likewise institutions, culture, and various freedoms impact the health, scope and depth of economic progress [or regression]. Without a strong economy you have no military, stunted private capital formation and a declining culture. Welcome to Europia - 50 years of collective socialism that apparently is the greatest thing since hot water or Jesus Christ. But of course the Euros disavow spirituality and technology.
Europe is not the future nor is it a fantastic success. Sure it stopped the internal Euro-civil war from occurring again. But the 20th century's European 30 year civil war had more to do with Germanic fascism and militarism and bizarre alliance structures than anything else. Post 1945 Germany was about as much a threat to take over Europe again as say...Denmark. Fascist Russian expansionism was a more obvious reality than a resurgent tete-a-tete entre les Francais and der Teutons. Yet understandably the ravages of another European civil war had to be permanently prevented.
So give the Euros their full due. Civil war was stopped, some economic and social peace was established, and some form of watered down democracy, however unrepresentative and taxing it became, was established. Good for them. Now what?
Now what indeed. Governments consume 45-50% of GDP - the Nazi's made it all the way to 58% according to Von Mises. So the Euro's have some work to do to catch up. Six layers of dense socialist governance blankets 450 million people. Technocratic elites pontificate on abstract theories while implementing the regulation of tomatoes and toilet size. Productivity is close to zero. Spirituality is declining. Living standards are 35% below US levels. In Sweden 45% of the population lives below the US poverty line. Nirvana Europe is not.
Muslims now make up 30-40% of Euro youth under the age of 30. Mosques proliferate. The EU military is a joke. No one works that hard. Vacations are more important than say making profit. Entrepreneurs are laughed at. Go bankrupt starting a business in Europe and you will suffer some severe consequences. State owned education and media are so left wing they make CNN and the US Democrats look like blood curdling imperialist crusaders. Belgium is technically bankrupt - so is Italy. Grumbles aplenty exist over the Euro.
And the Euro reflects the manifestations of the EU diseases which eat at the Euro body politic.
The Euro enacted in 1992 and formalized in 2000 presupposes liberalized reforms, however the EU's political structure obstructs such reforms. Europe's old way of doing business through big banks, big government, big labour unions, and big companies, is having a difficult time accommodating itself to the globalization process, especially given its high tax levels and welfare schemes. Nationalist politicians cite the fantastical and mythical EU ?lifestyle' advantages over the US to exploit any economic dislocations at the regional level, by blaming the Euro and the globalizing process.
Without significant labor and capital reforms the rigidity of the Euro monetary process directly leads to higher unemployment. Unemployment is extremely high with the real level at around a 20% rate. There has been a seemingly never-ending stream of subsidies to sectors and companies that seem (to the general public) to be wasting valuable resources, alluding to the need for change. It is impossible to solve these intractable problems since the current labour and legal legislation in EU countries benefits current workers and voters. Therefore co-ordinated economic reform and currency management between differing regions are huge issues that lie unresolved.
Pity the Euro Central Bank. If the ECB still maintains a hard EMU and Euro, which it is currently doing via a tight monetary policy with high interest rates, it may lead to escalating wage demands, lower consumer spending and investments and a loss of exports, and perhaps an economic downturn. On the other hand loose monetary policy will feed inflation, and capital will be exported out of the EU to seek higher rates of interest elsewhere. This will decrease Euro capital available for investment. Already Germany is a large net exporter of capital - a vote by those with money to seek out economic advantage elsewhere in the world. With a moribund economy and high fiscal spend, your monetary policy is limited.
Inflexibility leads to poverty:
The EU distributes only 1.5 % of its GDP to its member states [most of it to support farmers in France and Spain]. This means that different economic stimuli and fiscal management cannot be applied to regions experiencing different phenomena. As well unlike the US there is no common language, culture or history to bind the various nations together. For a common currency to have a chance at success the economies involved must have similar business cycles and have similar structures. It helps if they have similar histories, language, culture and business cycles. In this regard flexibility and mobility of labor and capital are invaluable, something the EU lacks.
Given the multitude of barriers that exist between EU nations, the Euro is facing problems thanks to a lack of high intra-EU labor mobility, price and wage flexibility. Europeans are reluctant to migrate to other lands of promise [only 5 % live outside their country of birth] for obvious familial and linguistic/cultural reasons. Given this relative inflexibility in mobility and the stickiness of regional prices it cannot be expected that a common currency will add stability to the overall EU structure, but rather will add ?subsystem' or local instability as countries, with a loss of macro-economic currency control will not see corresponding changes in labor and prices as the economic conditions fluctuate.
In simple terms labor will never migrate to better working climes, and capital has a tough time to find appropriate investment returns.
What is the lesson of Europe and its euro? It is that an artificial political creation or ?Union' is fraught with difficulties and will only succeed if the economy grows. The basis of the Euro-elite's obsession to rival the US is that the political program will engender economic reforms which will translate into political power and over time some collective ?consciousness'. Though the Euro is strong, the Euro-economy is not. Artificially high Euro exchange rates only impede economic and export development. Prices are high, returns are low [thanks to taxation], and labor flexibility which is vital for investment growth is non-existent. Foreign direct investment is looking elsewhere for better returns.
So if you look at Europe today it is fair to say that the old Continent seems more intent on drifting into unconsciousness than actually creating a real European consciousness. As Government gets larger and politically correct socialism expands the EU's rigidity and the grumbling over the Euro will accelerate. Artificial political creations have their limits. Organic, natural growth and freedom are the pre-requisites for economic, military and political dynamism. These are concepts that the Europeans have decisively rejected.
Some sources:
-Depending on the calculation used, the EU per capita productivity rate is about 1.2 % during the past 5 years about 50% of the US level.
-Ash, Foreign Affairs Vol 77, no.2, pp. 60-65
-Economist April 5th 1997, p. 19
-Feldstein from Harvard, Time, June 1998, p. 18
-Padoan in Mansfield and Milner, p. 131
-The EU Stability pact has engendered much criticism. Some state that the 3 % deficit limit should be eliminated or changed to 5 %. But this pact is written into EU law and to change it would require 15 unanimous state votes. As well the EU area debt is now at 72% higher than 60% level outlined in Maastricht. It might be better to reduce such debt levels independently as states than in trying to do it collectively.
After working for a few large IT firms Read born in 1966, is currently an entrepreneur and Venture Capital Advisor and Managing Consultant for Wireless and Mobile technologies [including the internet] and in particular, in software applications for the Wireless or Mobile Industry.
http://www.craigread.com/
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