Europe’s reboot: Reform or die
Sooner or later EU denial must give way to gut-wrenching reform. The longer the delay, the greater the pain for the Lost Generation.
The precipice of relative poverty never looks very threatening. Thus, despite mass eurozone youth unemployment and a 12 percent rate overall, Europe retains a facade of relative prosperity. However, the UK and US economies are growing with gusto, surpassing pre-recession peaks. Europe is sliding, still 2.5 percent below the 2008 peak with a trans-Atlantic growth deficit of 2.5 percent per annum. Compound growth is creating an ugly mountain for Brussels to climb.
With the lost generation in full swing, prolonged eurozone decline risks Western obsolescence while the UK is restrained from growing faster thanks to the straitjacket of the cross-Channel laggards.
Radical surgery is urgently required. The Clark Kent of European Central Banking, Mario Draghi, is doubtless sprinting around the streets of Frankfurt cursing the lack of phone boxes in the age of cellphones.
However, the analogue/digital divide is key to Europe’s weakness. Outmoded state corporate socialism plagues Brussels and EU nations alike. Europe needs a massive Schumpeterian revolution to rip asunder this reactionary old guard. A vast dose of creative destruction must tear down the rusty facades, empowering the eager workforce towards employment in a new realm of opportunity.
Unfortunately the ‘solution’ Draghi aspires to demonstrate wearing his Super Mario suit is quantitative easing (QE). Praised for helping stabilize the initial shock to the world financial system when Lehman Brothers collapsed, QE is a dismal scientists’ tool increasing plutocracy – enriching a fraction of society at the expense of the vast majority. This is not capitalism, it is plain daft. The solution to 2008 was to let banks go bust but the prevailing socialist corporate mentality made the taxpayers pay for banker-government folly. That was not capitalism either, but it was equally daft.
Resolving the Eurocrisis requires harsh medicine. There are several approaches – even if QE happens, we will eventually have to try them all. Taking the QE route first will leave the EU mired in so much debt it will likely fast track default. However, the euro surviving in any way looks unlikely as the currency removes the flexibility of weaker/more profligate members to find a safety valve.
A traumatic euro breakup remains plausible but first Brussels will cocoon the continent in duct tape until the seams finally give way. This prolonging of the crisis potentially damns a generation to unemployment. Many have already lost five years and more while the EU desperately tries to paper over the cracks as denial rules the flawed single-currency project.
While QE is a dangerous option, exiting the euro, or destroying it altogether is a feasible, if traumatic, solution. Alternatively, strong nations like Germany and Holland could leave, leaving behind a rump euro; an erratic alliance of unreformed profligacy. Alternatively the weak countries may eventually be squeezed out one by one. None of these options are particularly palatable due to the traumatic short term upheaval but the brutal reality must be faced: Europe isn’t working. The future of the EU itself is ultimately at stake.
Europe needs a renaissance in trust to encourage investment and free small entrepreneurs to build next generation small businesses, a vital digital backbone for the new economy. Top down EU soviet approaches have consistently failed, leaving white elephant projects blighting the landscape in all 28 member nations.
The EU is uncompetitive in the world economy. Red tape must be slashed amid a bonfire of bureaucracy with a deregulatory impetus to remove myriad daft edicts and growth impediments to create a proper simple level-playing-field single market. The state has long since exceeded its economic mandate, reducing the likes of France to ongoing stasis. The government controls 57 percent of the economy, but delivers poverty, not growth.
Labor markets must gain flexibility with state intervention vastly diminished. A better business environment sits hand in glove with the wondrous economic opportunities which abound from the impact of bio- and nanotechnology or the localization of production through 3D printing. A host of marvelous financial innovations such as Social Impact Bonds can help targeted charity and government initiatives to deliver sustainable social security systems as opposed to benefit/pension time bombs.
As a European, I am uncomfortably caught up in a continental malaise where incompetent national governments and the EU are fused in a pattern of mutual denial. Europe needs a revolution right now. Sadly reform is being stymied by incumbents in denial.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.