President-elect Trump and his team are clearly preparing to raise the stakes in their confrontation with China. While focused on what they (correctly) see as the main threat to the United States, Trump seems to consider Europe to be a secondary concern.
But it may not last.
Europe faces a multidimensional set of problems. The continent's elites have squandered post-Cold War peace dividends, grown welfare states, built unruly bureaucracies and flawed Created a currency. Now everything is falling apart.
Confronting China will be difficult and costly. The need to manage complex and changing coalitions. But there is at least some structure to this conflict. By contrast, the problems facing Europe are endless, with little leadership and no consensus on how to deal with them. The result can be a chaotic vacuum that can't be resolved, and that's just the worst situation.
America certainly has its own problems, but it has better demographics and is home to some of the most innovative and cutting-edge companies. More importantly, productivity and the economy have been consistently growing. Europe, by comparison, is at a virtual standstill. With the exception of Dutch semiconductor systems supplier ASML, it is home to few major technology companies. To make matters worse, the continent doesn't seem willing to make the hard choices, and a common currency is making the situation even worse.
The introduction and promotion of the euro symbolizes Europe's problems. The existence of the euro has nothing to do with economics and everything to do with politics and Europe's elites.
For the past 160 years, Europe's political elites have embraced the fantasy of a united Europe as part of their internationalist vision and as a counterpoint to the United States, which is viewed with a mixture of envy and contempt. Since the establishment of the European Coal and Steel Community (precursor to the European Union) in 1951, Western European nation-states and senior bureaucrats within their pan-European organizations have pursued opportunistic integration policies. Push all the doors and go through the open doors and past the closed doors.
Unfortunately for the elites, eradicating nationalism proved impossible. It is clear that the actual citizens of the various European countries support some degree of integration, but do not accept the elites' idea of a “United States of Europe.'' On rare occasions, important treaties were brought before voters but were not approved. Hit or miss, Several second referendums with special carve-outs and benefits were held to gain approval. (Germany, Europe's largest country and largest economy, has never held a referendum.)
The creation of the euro was supposed to be a major step towards European integration. Elites believed that a common currency would be a spectacularly successful next step and, more importantly, a rival or replacement for the dollar as the world's reserve currency. That didn't work.
After a rocky start, EURwas initially pegged at $1.15 to 1 euro, but by 2008 it had soared to $1.60, beginning an inexorable long-term decline to where it is now near parity. While this will increase the export competitiveness of euro countries, it will also make their citizens even more impoverished. Moreover, the long-term decline in currency values reflects economic weakness.
What's worse is that the euro imposes a uniform monetary policy. This would ban the 20 countries that use the euro from borrowing in their own currencies, despite vastly different economies, fiscal policies, national debts and domestic politics. In addition, the euro has become an important achievement in the minds of Eurocrats in Brussels. This is some kind of “Hotel California” currency. You can check out at any time, but you can't leave.
When economic conditions are good and governments practice fiscal prudence, all is well. But when growth slows and the book is finished, problems arise.
greek financial crisis was a warning and the results were not very good. Greeks endured years of devastating austerity and political instability, barred from devaluing their currency, defaulting on their debts, and restructuring. Hundreds of thousands of people are immigrating and the economy is worsening. barely big than 20 years ago.
Of course, the EU learned nothing. Greece should have left the euro.
France is currently in crisis. Faced with large budget deficits and rapidly increasing national debt, France finds itself unable to devalue or impose fiscal repression. As a result, we are facing fiscal austerity. no one in the country will accept it. Neither the left nor the right intends to do that. rule the french state.
France is unable to grow its way out of trouble because various powerful interests are unwilling to accept the disruption required for serious economic reform. In short, what the French want is largest welfare state It's in Europe, but at a discounted price.
If France still held the franc, it would not only burden its citizens and banking system with debt, but also potentially devalue the franc. It's not ideal, but it is better than austerity. Currency devaluations and financial repression occur over time and can always be blamed on politically favored “markets.” The pain will be felt by everyone, there will be more room for reform, and people will have time to adapt to new economic realities.
Austerity, by contrast, is immediate, painful, and hits certain groups hard. Austerity makes politics incredibly unstable and breeds extremism. There are rarely long-term answers. Of the two bad options, devaluation is the better option, but the euro prevents that option for all participants.
Greece was small enough to manage the crisis, but France was too big. With war in Europe's east, a looming wave of Chinese imports sweeping European markets, and a political vacuum in Germany, the country is already in a political crisis.
France is not the only European country with a large welfare state and competitiveness problems. Other states have the same problem, with even worse demographics. Handcuffed to the euro, more European countries are likely to fall into an austerity crisis that will metastasize into a political crisis.
Without a significant boost to economic growth, Europe will find it almost impossible to reach the point where it needs to cover its own defense costs. Tensions escalate with President Trump. Consumption will not increase and the continent will remain dangerously dependent on exports. reform In his report to the EU, Mario Draghi proposed: land with a thud. Draghi's proposal is not a panacea, but there seems to be no desire to change anything.
The Trump administration could face a growing crisis over the next four years as Europe becomes more politically divided and cannot afford to maintain its welfare state, let alone its own security. Unity in confronting China, Iran, and Russia is unlikely.
While US establishment experts are panicking about President Trump's commitment to NATO, it is entirely possible that Europe's economic and political decline will cause NATO to collapse. For everyone, say jabber According to the chatty classes, it is Europe that has failed to keep its end of the defense bargain and build a strong economy to support itself and the Atlantic Alliance.
keith nortonHe is a co-founder of Silent Majority Strategies, a public and regulatory affairs consulting firm, and a former Pennsylvania political campaign consultant.
