Posted on 11/04/2002 3:40:00 PM PST by wideawake
The Euro-zone is in a spiral of self-destruction as its crisis-hit economy heads from bad to worse
BY ITS own hand the economic life is being squeezed from Europe.
Collapsing confidence, tumbling stock markets and a sickly currency take second place to a spectacular public row between the president of the European Commission and the European Central Bank on whether the central pillar of policy is "stupid" or "indispensable for economic and monetary union".
Even by the standards of the "fudge and mudge" political culture that has long prevailed in Europe, it is hard to believe it has sunk to this.
Pork-barrel spending or utterly inflexible central bank rules: one or the other of these roaring dinosaurs will have to give. But in this epic battle it is the economic future of Europe that is giving first.
While this battle rages, the Euro-zone economy is going from bad to worse. It was hardly surprising that many missed the devastating one-word summary of the German economy by the country’s equivalent of the CBI last week: "catastrophic".
From the bottom to the top, but especially at the top, Europe is in a deepening mess. The international economic downturn has contributed to continental woes. But that downturn is not the cause, or the proximate cause, of Europe’s stunning reversal of fortune.
The cause is a self-destruction wrought by a political elite that has wrapped itself in fantastical self-delusion about the superiority of its economic system, the coming ascendancy of the single currency over the dollar, and the tide of wealth and prosperity that would inevitably flow from the relentless pursuit of "ever closer union". Here, on an epic scale, has been a procession of naked emperors who cannot begin to grasp why the world has stopped applauding.
For the Euro-zone, the applause stopped long ago. In the cacophony that passes for policy coherence there has come an absurd but utterly predictable result: far from the euro providing greater stability and a platform for better performance as its apologists claimed, the economies inside the Euro-zone are now faring worse than those outside.
This year will be the third in succession that the economies of the EU 15 have in aggregate outperformed the Euro 12. For this year and next it looks set to be the case that Britain, in GDP growth terms, is better off out. Those five economic tests behind which the government has hidden should be stripped away to show a glaring, humbling truth: if it’s economic performance you want, you’re better off out.
Nothing has more exposed the myth of the superior continental economic model than the flight of capital out of the Euro-zone and the stock market collapses this year. They have been breathtaking in their severity. At one point this month the German stock market was showing a collapse of 70% from its peak, double the percentage fall in the Dow Jones. The full consequences of the destruction of savings on such a scale and at such a pace have only just begun to make themselves felt.
Barely a week now passes without another red pencil taken to forecasts for economic growth in the Euro-zone. Last Friday, it was the turn of the National Institute for Economic & Social Research. As if 1.4% growth last year was not slow enough, it now forecasts that the Euro-zone will only manage growth of 0.9% this year and 2.1% next.
As for Germany, which accounts for about a third of output in the zone, GDP will rise by only 0.4% this year, and by 1.7% next, a shadow of the subdued growth in America - the economy that Europe so despises. On Monday, the keenly awaited Ifo index of business confidence is set to show a further fall for the fifth month running. On top of slowing demand, German business now has to contend with a coalition that has proffered yet more of the disease as the cure: yet more tax.
It is not the world slowdown that has caused this performance collapse, but the interaction of entirely self-inflicted wounds: over-regulated labour markets, a relentless rise in the government share of the economy, a growing tax burden, regulation out of every orifice and a desperate rearguard action against all and every attempt to dismantle state aid and subsidies. The same clique that greeted the bursting of America’s new economy bubble as proof of the flawed Anglo-Saxon model is the same one that, now their own economy has fallen into a far deeper slowdown than that in the US, turns to blaming US policymakers for not doing enough to pull the rest of the world including the EU out of the mire. To listen to Europe’s political elite is to hear the pathetic cry of the bankrupt that someone else spent all the money. As for Germany, the powerhouse of the 1950s and 1960s has long given way to lethargy and laziness. Reds and Greens attack what is left of a once proud enterprise culture. They declaim their country in the Bundesrat like latter-day Tom Paines. But truly, it is they who pity the plumage and forget the dying bird.
Despite all this it has long been the belief of EU apologists in Britain that if only we engaged "at the centre of Europe" we would "win the argument" and slow the drive to ever closer union and ever greater centralism. But this is to ignore the fact that there are large sections of opinion in continental Europe that do not share the political and economic attitudes of the Anglo Saxon world one iota. Indeed, not even in the disintegration of the Growth and Stability Pact is there much cause for British reformists to cheer. It was Prodi no less, who repeated his call last week for "a single economic government for all countries that share the same money", with more power to the Commission to enforce a Stability Pact duly doctored to his liking.
This call was echoed by members of the EU’s latest triumph of hope over experience, the Convention on the Future of Europe, whose economic committee called for the introduction of qualified majority voting on tax harmonisation and for strengthened economic co-ordination between the member states.
As the economist Stephen Lewis eloquently argues: "In the circumstances it is questionable whether UK ambitions in the EU are realistic."
In any event, there is no guarantee, he adds, that what emerges from the current crippling stand-off between Prodi and a European Central Bank that seems bent on holding out against interest rate cuts until the incipient recession has turned into the full-blown type, will be a substantial improvement.
It is the basic principles on which this monetary union rests that are deeply flawed. No amount of dissemblage about five economic tests makes up for the failure to recognise and attack the profound structural and conceptual flaws that lie behind this currency union and the crisis that has developed within it, one not of performance merely, but of survival. Here was a construct that was never an end in itself but an instrument intended to drive ahead towards "ever closer union" and it is that drive, and the Bonapartian vanity behind it, that is leading Europe to ruin.
Some take comfort this weekend from the news that Peter Hain, the government’s "Mr Europe" has been moved to the Welsh Office. But the balance of influence in the Cabinet has moved if anything in favour of the pro-Euro camp. If that is good news, at least one does not need to look too far to see what bad news is like.
And I believe the metric is growth, not size - i.e. the EU 15 has grown, say, 1.5% per year, while the euro 12 has grown 1.3%. You see that when we're discussing growth rate, it's possible for the Euro 12 to outperform the EU 15 if the three noneuro countries have lower or negative net growth.
The Brit history series is super, however. Did you note the less-than-humane way that King Henry's guys eliminated Becket? Ouch! If you go to Canterbury cathedral, they show you the exact spot where the bloody deed was done.
In St. Peter's in Rome there is seal on the floor to mark the spot where Charlemagne was crowned emperor on Christmas Day, 800.
VBWC, methinks you've too flippantly accused Americans of being uncultured compared to their European brethren.
I think as high a proportion of Europeans' lives revolve around local football and cheap beer as Americans' revolve around cheap beer and the NFL.
I think the attenuated disco, imported rap and light pop which forms the soundtrack of most young Europeans' lives is just as inane and empty as the original rap and light pop which American teens listen to.
I think that all culture, in the final analysis, derives from the religious life of a people, and Americans have a more vigorous religious life than Europeans do. More Catholics attend Mass on Sunday in New Jersey than they do in France.
An anecdote: one of my favorite poets is Hoelderlin. A few years ago I took a train from Freiburg-in-Breisgau to Tuebingen, the university town where Hoelderlin was born and where he spent the last years of his life in a tower overlooking the Neckar. I sat there on the train, dressed in jacket and tie, quietly reading selections of the poet's works in German. At one stop an Englishman sat down in the seat across from me. He was wearing a Nike tracksuit and was, yes, eating some McDonald's cheeseburgers from a paper sack. He had clearly been drinking. The conductor told him to put the food away, and when he was slow to cooperate a tipsy German (it was about 10 a.m.) dressed in full Bayern Muenchen soccer kit made some comments - they began arguing over soccer since they were apparently both on their way to Munich to watch the match.
There I was, a sober properly dressed American trying to enjoy the work of a German Romantic poet, while two drunken mannerless Eurolouts were arguing over a sports club.
Whenever I hear a European describe Americans as cultureless, that scene replays in my head and I laugh to myself.
America is headed down the same path. We are only doing it more slowely since we don't have a parliamentary system where the majority controls everything. The only good news in this for America is that Europe's fall due to socialism will occur before ours and might wake up some over here who still believe in their utopian dreams.
In Europe, they still conceive of legitimate authority as descending from the government (top), to the bureaucracy (middle), and finally down to the people (bottom), basically welfare state serfdom, but serfdom nonetheless. The average European has to deal daily with insolent and abusive bureaucrats who make ours look like saints.
The reason ? After living in Europe for three years I concluded that they fundamentally view the people as servants of the government. In older times, before the death of any real European faith in a higher power, authority would have originated with G*d. Now, the apex of the pyramid is made up of petty bureaucrats and insanely corrupt politicians.
America is in no way perfect, but our conception of the proper social order is the opposite. To us, legitimate power descends from G*d to the people and then to a government made up of what we still like to think of as "public servants". In other words, in Europe power flows from north to south. Here we believe power should flow from south to north.
This is one reason the Europeans have never and probably will never really understand us nor be able to fully emulate our success. It would require of them a complete and genuine revolution in thought of which they are probably not capable, and which they would mightily fear.
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