Economist Milton Friedman, one of the world’s foremost economic minds is predicting a major European economic crisis in the near future. Unfortunately, I think he’s right.
The idea of the EU is sound – a common market in which individual European countries drop unnecessary trade barriers and agree to work together on economic issues. There’s no reason why a car made in Germany needs to go through a series of regulatory hurdles to be sold in France.
The problem with the EU is that it replaces the old inflexible and corrupt system of national regulations with a new system of inflexible and corrupt supranational institutions under a framework of bureaucratic arrogance. The EU has taken the worst of Old Europe and magnified it into an even larger nightmare.
Europe must cut spending and reduce it’s draconian labor regulations and embrace the free market more than it has. Unfortunately for European reformers, that means stopping the flow of money to Europe’s massive and horribly ineffcient welfare system. The chances of that happening without major social strife are slim. What Europe needs is a series of Thatchers to shake up the status quo, but the political climate in Europe seems unlikely to produce such a creature. It may just take an economic collapse for Europe to escape its doldrums.
As much as I recognise the quality of Mr Friedman, I’m questionning his ability as prophet for the EU.
The EU has just enlarged at 450 millions citizens. This won’t be easy because these people are poor, and don’t have a big democratic background, but I bet you will call all eastern countries a success long before weapons shut up in Irak.
Eastern Europe isn’t the problem – in fact, I’m more bullish on their economy than on Western Europe.
The problem is that the Western European system is failing. You can’t keep having falling birthrates, immense social spending, and a labor market that’s entirely inflexible and expect to grow at a decent enough rate. Fortunately the French government is starting to take corrective action (Sarkozy is right – the 35 hour workweek is intolerable), but it could be like rearranging deck chairs on the Titanic.
Don’t get me wrong, economically it would be great for the EU to succeed – it would provide a needed island of stability across Europe that would make international business much easier. The problem is that the EU can’t get to where it wants to go without significant reform. Unless that reform happens, the EU won’t be able to expand far or fast enough to make up for the demographic shift.