THE European Union faces its first existential crisis. The EU worked well in the good times, when dissenting voices could be bought off, but worsening hard times threaten to knock it apart.
Half of Europe is broke (but still putting on the dog), while the other half tries to shun its spendthrift neighbors. Not long ago, the Europeans smugly lectured the US on our financial incompetence. Now it looks like their mistakes were worse.
Greed is universal. But it’s especially dangerous when masked by self-righteousness. European financial managers and investors were at least as greedy as our worst Wall Street wizards. They just fell for different scams.
Our core problem’s the real-estate bubble. Europe has multiple problems, from real-estate bubbles (grimmer than ours) in such countries as Britain, Ireland and brutally hit Spain, to madcap mergers and acquisitions doomed by excessive borrowing on murderous terms.
The EU cobbled together an association of nations with radically different economies, values and prospects. EU regulations (and those of the smaller Euro zone) were supposed to discipline economies, but southern-tier countries cooked the books while new accessions to the east just tap-danced.
Now, with the soundest economies (Germany, France and a few others) in deep recessions and fending off looming depressions, the myth of unity is crumbling. Protectionism is epidemic. (Last year, France’s Nicholas Sarkozy was all for Europe; this year, however, he’s all for Fortress France.) And the bureaucrats in Brussels go ignored.
Damning the other guy, France, Italy, Germany, Britain and Sweden are subsidizing their auto industries and constructing incentives for their citizens to “buy local.”
But the wave of bankruptcies in virtually every sector appears unstoppable. Venerable firms are collapsing even in “stable” Germany. Greece can’t pay for hospital supplies. Spain’s real-estate prices have fallen as much as 50 percent. Greece, Spain, Italy and others play “magic financing” to pay pensions. Some Eastern European countries face utter bankruptcy.
All those green initiatives that sounded so good in the boom years? Industries are squealing, and Brussels has put the brakes on new initiatives – as the most optimistic forecasts for unemployment in 2010 in the Euro zone exceed 10 percent (unemployment in Spain may hit 25 percent, the Great Depression level).
All the states that can pay their bills appear intent on beggaring their neighbors, with the Dutch prime minister calling new EU members “freeloaders” and the big economies determined to impose their policies on the little ones – imagine California dictating rules to Rhode Island.
As for the Euro, which has been adopted by 16 EU states and was supposed to supplant the dollar, it’s still overvalued, although it’s down from its high of $1.60 to just under $1.27 (as of yesterday). For Europe’s major export-driven economies – above all, Germany’s – this continued overvaluation means lower global market share as Berlin fights to save its leading banks and industries.
To date, the Euro’s been propped up by a combination of rigorous discipline imposed on national deficits (they must stay under 3 percent) and a willingness to look the other way in the clinch. But France, Ireland, Spain, Greece and several other states had already dropped through the fiscal trapdoor last year. And 2009 looks much worse as governments facing angry electorates try to spend their way out of this crisis (that part may sound familiar).
For their part, the Brits, burdened with the anorexic pound, at least maintain their invincible sense of humor, joking about “Iceland on the Thames.”
While the Europeans are getting a lesson about the perils of smugness, their problems aren’t good news for us. The United States remains better positioned to pull back from the edge of depression, but full recovery even for us depends on a global turnaround. As the Europeans are learning, national markets can’t function in a vacuum anymore.
But bet on America, not on the Old World. I’ve lived long enough to see American supremacy “shattered” a half-dozen times. Except that it never quite happens.
I stared skyward to scan for Sputnik back when the Soviets were going to “bury us.” Then the oil shocks of the 1970s and the malaise of the Carter years doomed us. Next, the Japanese were leaving us behind. After that, it was Europe, then China. Last year, global pundits gleefully informed us that the United States was really and truly finished at last. The more things change . . .
I’m putting my money where my mouth is. In the USA.
Ralph Peters lived in Europe for 10 years during the Pax Americana.