Professor Bainbridge has an interesting deconstruction of the idea that the EU is the next global superpower based off of an argument by Timothy Garton Ash. He finds Ash’s arguments lacking, and the idea that European “soft power” will create a European superpower to be unsupported by the facts.
Europe is currently on the leading edge of a social, demographic, and fiscal crisis. European governments have established cushy social safety nets, but the aging European population and anemic European economy make them unsustainable over the long term. The rates of European economic growth can’t support the demands of an aging population. This demographic crisis would be bad enough alone, but when it’s added to the inflow of radicalized Muslims coming into Europe, it only gets worse. The massive rise in anti-Semitic violence in France, the murder of Theo Van Gogh in the Netherlands, and the deadly attacks in Madrid this March all are indicators of the growing tensions in Europe.
The EU is also a tax hell, in which everything and anything is subject to punitive taxes. The European labor market and labor laws mean that the act of hiring or firing an employee is so difficult that employment is largely stagnant. This is one of the main reasons why unemployment in Europe is nearly double that of the United States, and companies like Airbus survive only thanks to massive government subsidies, essentially making them de facto state-owned enterprises.
With European fertility rates dropping and the EU economy increasingly caught up in a web of its own red tape, the chances of Europe’s “soft power” amounting to much is slim to none. Europe badly needs an injection of new blood, and a new and more dynamic leadership that takes the unaccountable EU and reshapes the EU bureaucracy into something more accountable to the populace. However, the blindness and the hubris of the EU intelligentsia towards their own situation isn’t helping any. The EU is fiddling while Rome, Paris, Berlin, and Madrid burn, and by the time anyone starts taking their challenges seriously it may well be too late.
It must be killing you that after years of denigrating Europe’s economic structure, the Euro is currently kicking the dollar’s ass. I guess you can take comfort in the idea that at some point in the future, Europe’s demographic shift will force the Euro’s death spiral to catch up to that of the dollar.
The rise of the Euro is a Pyrrhic victory for the EU. It makes European exports more expensive and drives demand for cheap US imports, which helps the American economy, especially manufacturing.
Moreover, the refusal of the ECB to cut interest rates hurts the EU economy by overvaluing the Euro and deflating the currency. By the time the EU really starts its death spiral (which could be all too soon), the dollar will remain strong.
With the Fed increasing interest rates to reduce the inflation caused by the increased liquidity needed to get the US economy back on track, the falling dollar is the economic bugaboo du jour and little more.
We’ll see. At this point, the entire American economy is dependent upon the goodwill of foreign investors willing to sponsor our rapidly growing twin deficits. Resentment over Bush’s arrogant foreign policy and its predictably quagmirical consequences are making the continued goodwill of foreign investors financing our debt an even bigger gamble than it is traditionally. If foreign investors decide that the perpetual financing of American debt is no longer a necessary evil in a world where new economic superpowers are emerging that render America obsolete, 1929 will seem like 1999 by comparison.
Considering that the country is governed by a group of ideologues whose only financial fear is that government tax policy may raise rates and increase revenues to reduce our twin deficits, it’s quite clear that treacherous times are likely ahead.