From the January 18, 2010 Wall Street Journal Europe
January 18, 2010
by Irwin Stelzer
The European Union finally has in place a president of the European Council, Belgium's former prime minister, Herman van Rompuy, and a foreign secretary (a.k.a. high representative), Labour Party stalwart Catherine Ashton. True, the European Union's "democratic deficit" remains and the heads of state missed an opportunity to appoint candidates who could propel the EU to world notice, instead choosing candidates of whom no ill can be spoken—or much of anything else said, for that matter.
True, too, Spain's Prime Minister José Luis Rodriguez Zapatero has made it clear that during his six-month stint as the EU's rotating president he has no intention of ceding the limelight to Mr. van Rompuy by, among other things, offering his own plans for EU-wide reforms. And outsiders can't quite figure out where José Manuel Barroso, president of the European Commission fits, but as unwieldy a body as the EU can probably find work, some of it useful, for all three of its presidents.
"I think there is room for everybody—no problem," Spanish deputy prime minister María Teresa Fernández de la Vega told reporters at a tri-presidential press conference, giving new meaning to the make-work term, "Spanish practices".
Still, with approval of these appointments by the EU parliament almost certain, the battles for jobs for the boys and girls are over. Which turns attention to the economic outlook. "Better" is the most accurate one-word description for the near term; "perilous" a more apt description of the longer-run outlook.
The worst of the recession seems to be over, at least in the largest of the EU's 27 members. But the recovery is fragile, and will remain so until consumers unzip their purses, businesses begin re-stocking, and small firms (with under 250 workers), which employ 70% of EU private-sector workers, can get better access to credit.
The financial system is no longer likely to implode, but the banks have yet to go through a confessional cleansing of their balance sheets, and Greece remains economical only with the truth of its budget reporting. Still, 2010 should be better than 2009. If you don't think that is saying much, remember how things looked just twelve months ago.
It is the longer-term prospects for the EU that a series of recent events calls into question.
Item: the European Commission has awarded €1 billion ($1.45 billion) to cover the cost of the first three contracts needed to build Galileo, Europe's independent—independent of the U.S. —satellite navigation system. Total cost is now estimated to be €5 billion, up from an original estimate of €2 billion. It is not clear that these resources are best employed in playing one-upmanship with the U.S.
Item: French president Nicolas Sarkozy continues to tilt the European economy away from free markets. He wants to put to an end to "currency disorder…. We can't increase the competitiveness of our businesses in Europe and have the dollar lose 50% of its value against the euro…. Are we supposed to just give up selling?" Better, he feels, to manage exchange rates, and to assign a bigger overall economic role to the nation-state and the 27-member EU bureaucracy. As if to emphasize the cultural aspect of this policy bent, he proposes to tax ads on Google, Yahoo and other sites to finance French writers, musicians and publishers.
Item: EU members are still devoted to a high-tax policy. Italy, looking across the border at prosperous, bustling, low-tax Lugano, concludes not that it should lower taxes, but that it should redouble its efforts to collect taxes from those of its citizens whom it feels are evading payment. It is rather like the poor Russian farmer who, granted one wish, asks God to kill the cows of his more prosperous neighbor rather than give him a few.
Item: Mr. Zapatero and Mr. van Rompuy seek an increase in the EU growth rate from its historic 1% to 2%. Decades of stalled productivity and growth are to be corrected by still more calls to obey an economic plan formulated by the same risk-averse eurocrats whose Lisbon Plan has been consigned to you-know-where.
The EU is afflicted with an ageing population; an increasingly expensive welfare state; a substantial unassimilated immigrant population, made angrier by its exclusion from the work force; and a desire to fund its welfare states by shutting its eyes to its military obligations in a dangerous world.
Economic growth would address many of those problems. Which puts a premium on increasing productivity per worker, on attracting mobile, wealth-creating entrepreneurs, and on growth-inducing tax and labor policies. In short, a premium on innovation, on open markets, on looking outward.
By seeking to control exchange rates and entrench economic and cultural protectionism, by making firing so difficult that there is a reluctance to hire, the EU seems to be trying to protect itself from the 21st century's version of the refreshing winds of change. It is liable to catch its death of cold in the process.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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