Don’t Let Doom Merchants Obscure True European Picture

european debt waveNearly three years since the economic earthquake that shook the world, most regions of Europe continue on the path of recovery. It is unfortunate that most of the headlines dwell on the plight of Portugal, Ireland, Italy, Greece and Spain because much of the rest of Europe is making steady progress toward developing a more sustainable economic model.

Germany has emerged as a global economic leader, with solid growth rates and unemployment declining to its lowest level in decades (about 6%, according to OECD harmonised figures, compared to 9.3% and 9.2% for the EU and US respectively). The Nordic countries of Finland, Norway, Sweden and Denmark all have seen steady growth. Sweden, viewed as “socialist” by many in the US media, in particular has been a bright spot, with solid growth predicted in 2011 and 2012 as well. Sweden and Germany have defied the experts’ predictions, and are a reminder of Europe’s capacity for pleasant surprises. France, the Netherlands, Switzerland, the Czech Republic and others also have shown strong signs of recovery.

The news of course is buzzing with fears over governments drowning in debt, whether in Greece or in the US. But the fact is Europe is not as much underwater as the US. Compare the current debt averages, in which EU debt amounts to 73% of gross domestic product while US debt is 102% (latest US treasury figures). The US national debt has skyrocketed due not only to the economic collapse but also to excessive military spending and out-of-control healthcare costs. While the EU debt is still higher than the target of 60% of GDP, US debt will exceed the size of the national economy for the first time since the second world war.

Nevertheless, President Barack Obama joined the Republicans in Congress to extend the Bush-era tax cuts for the richest 2% of Americans, which the president had vowed to end. Yet inequality in America is increasing dramatically, the 400 wealthiest Americans now having $1.4tn (£878bn) in wealth, which is greater than the gross domestic product for the entire country of India (with more than a billion people).

In a momentous reversal, “socialist” Europe is the place that now is emphasising budget discipline. Yet at the same time Europe is also endeavoring to preserve the best of its social supports for families and workers. (Meanwhile the US is having a devil of a time figuring out how to provide healthcare for the 47 million Americans without it). The US also has a huge trade deficit, both because it imports too much and no longer produces enough that the rest of the world wants to buy. Europe, in the meantime, has become the largest trading partner with both the US and China, with more Fortune 500 companies than America and China combined.

european debt crisisPoland is a great example of what is going right in Europe, and why it doesn’t make sense to obsess too much on the countries in a weaker position. The EU’s sixth most populous nation, with an economy larger than Ireland, Greece or Portugal, it has avoided a recession altogether during this economic collapse. Many economists have compared Poland favorably to Ireland in the 1990s, during the Celtic Tiger’s glory days (though so far no problems have been found with Polish banks). Foreign investors are taking a liking to what they see, attracted by stable growth and 38 million people with modest levels of household debt.

The amount of EU structural funds is substantial, €347bn (£306bn) over seven years, most of it targeted to eastern and central European member states. The American economist Paul Krugman has harshly criticized Europe for not providing enough government spending to stimulate its economy, but these structural funds have done much to jumpstart economies in the targeted regions.

Eastern Europe is also showing signs of revival. Latvia, Lithuania and Ukraine, which suffered double-digit plunges in economic output last year, have begun to grow again. Like Poland, these economies have benefited from the strong economy in neighboring Germany, with German exports to the region jumping by 20%. Turkey, also, has proven its economic mettle, growing at a China-like pace, with trade to Europe continuing to increase. There are a few worry spots, especially the small economies of Bulgaria, Croatia and Romania, but for the most part the “west to east to west” conveyor belt that had rolled so industriously prior to the economic collapse seems to be reviving.

So many economic green shoots sprouting across the continent puts the plight of the famous four in a broader perspective. Especially since Portugal, Ireland, Greece and Spain comprise such a small share of the EU economy, it makes little sense to become too obsessed with their situation. Each of them, for different reasons, have put themselves between a rock and a hard place. Certainly the other European member states should lend a helping hand, but at this point there are no easy solutions. It is going to take time and determination to move forward.

In the meantime, the success or failure of the European project is not dependent on their fate. That’s what the doom and gloom Eurosceptics don’t seem to understand.

The world is facing some enormous challenges. The world’s wealthy nations, not only in Europe but also in the US, Japan and elsewhere, are faced with a fundamental question: how does a modern economy develop itself and foster a decent, middle-class standard of living for its people without relying on fragile asset bubbles, hyper-consumerism (which adds to global warming), and running up huge public and private debt? The world urgently needs a model for fostering steady-state economies for the 21st century. Economic as well as ecological balance and sustainability must become the highest national priorities, indeed the basis for the blueprint of how to develop an economy.

steven hillEurope’s flaws and challenges are very real and should not be minimized, but nor should they be exaggerated or obsessed over. Europe is a work in progress, and it has been taking many correct steps not only to recover from the worst economic collapse since the Great Depression, but to chart a durable path into the future.

Steven Hill

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