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“Europe’s economic pain will bring pain to entire global economy” – US economist
Published: 19 May, 2010, 04:52
Edited: 19 May, 2010, 22:36
TAGS: EU, Crisis, Currencies, Economy
There might be speculators who will gain from EU’s problems, but they are only a handful of people and a very small percentage of the total GDP involved, says Robert W. Fogel, American economic historian and scientist.
“The more rapidly Europe’s economy grows, the better it is for the global economy, the better it is for China, for the US, for India. European economic growth is an important factor in global economic growth,” he says.
“PIIGS – Portugal, Ireland, Italy, Greece and Spain – have very high debt burdens and the euro has been falling quite rapidly,” Robert W. Fogel says. “The fundamental source of the problem has been the very generous pension funds and other entitlements which are not sustainable given the level and rate of growth in the principle European nations – I refer to them as the EU-15, the countries that were in the European Union in 2000. So the inability to meet the obligations or the great burden of these obligations threatens to strangle the economy of other European Union nations.”
The renowned American economist and winner (with Douglass C. North) of the 1993 Nobel Memorial Prize in Economic Sciences, Fogel also says that Europe has known a crisis was coming.
“There have been discussions by the economists of the OECD, the Organization for Economic Development and Cultural Change, for years,” he says.
“Another problem that the European nations have – which the US does not have – is the ageing of its population. The fertility rate has, since the 1970s, been below reproduction and as a result the proportion of elderly people had been rising relative to the proportion of people in the labor force. That is one of the root sources of the problem,” Robert W. Fogel says.
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It is absolutely fascinating reading the economic analysis by prominent economists and comprehend the extent of their blindness. We are in unfamiliar circumstances, but they insist to interpret events from the familiar position. The new paradigm is shaping, and they cannot see a thing. In their world, financial system is the only actor on the economic scene, and hence, the only solution to problems is to cut pensions, cut employment, cut anything that would result in savings to feed the financial monster that cannot be satiated any more. Forgotten is the fact that the economy depends on people, natural resources, energy, technology. You can cut all the pensions, and cut all the salaries, you can ask people to work for free, to forfeit their (actually bank's) homes, abandon their children and parents --- and still the financial baloon will not be reflated. It is leeking air all over the place, and the contraction is coming. The restructuring, REAL reforms and convulsions are on the way, and the more denial, the worse it will be. The markets will eventually be UNABLE to control the cost of energy and keep it ARTIFICIALLY LOW. Once the energy breaks free from the controls, the global paradigm of production sites being removed thousands of miles from the consumers, will loose its meaning. Production will move closer to the consumer in a range of industries, particularly food. We will be back to the COMPARATIVE advantage in trade, not ABSOLUTE advantage that consuming nations have over producers. With upheavals that are coming, the little old folk pensions will be a drop in the ocean.
So an economist is now an expert on population growth patterns... Maybe the US doesn't have this problem due to the influx of illegal immigrants? Does that mean US is in a better shape? As for pensions, if someone has invested their whole life into them, they deserve their returns. Inability to do so because of illegal activity of Too Big to Fails and other Banks, is not the faults of the pensioners. This doesn't solve the problem. EU has always been a play ground for local political failures to find greater significance ruling above all others without representation. EU's failure will be much healthier for its member states than to continue the charade of elitism.