If We Don't Fix Our Economy, Europe Will Become China's Disneyland
Nov 5 2012
It’s autumn in Europe. More and more lights are going out, but those of us in the north of the continent haven't felt too much of that yet, besides the regular updates on which Spanish or Greek high street is on fire, obviously. Despite the festival cesspit of an economic crisis some of Europe is already in, Brussels is keen to invite Romania and Bulgaria into the Euro-spending fold, as if everything wasn't already muddled enough. Jobs aren't materialising, education policies all across the continent are failing and the European Parliament don't appear to be looking for any real solutions to the problems some of us are already facing and most of us will face in the long run. We're fucked, basically.
While some idealists in the Western world daydream about the end of economic growth, China are buying resources, Western brands and dollar reserves. That made me wonder how long it would be until we see a real shift in the European day to day, so I spoke to the neoclassical-Keynesian economist Professor Alfred Steinherr – who was Senior Economist at the IMF and Chief Economist of the European Investment Bank – about Europe's situation and China’s ever-growing power.
Alfred Steinherr, photographed by Jake Lewis.
VICE: How messed up is Europe right now?
Alfred Steinherr: Globally, Europe is still regarded to be a continent of great social justice, but the welfare state has become too large and creates costs that future generations won't be able to bear. We all have to start dealing with the aging process more seriously in Europe – accepting lower pensions and working longer. Europe is at a disadvantage to emerging countries when it comes to age, but Europeans don't seem to have grasped that yet. François Hollande’s demand to keep the pension age at 60? That's pure nonsense, but good for votes.
What does Europe stand for right now on the larger world stage?
According to the Lisbon Agenda, Europe should have been the most innovative continent by now, but that hasn't happened, so the EU has nothing else to show for itself other than peace. Although, after centuries of war, Europe is war-weary, so it's fair to argue whether Brussels' actions actually has anything to do with that; even without all the institutions and bureaucracy there would have been peace. Cooperation can also happen between countries without necessitating a European Parliament with 600 people in it who travel around for free and don't really do anything at all. The EU has to produce successes constantly if it wants to justify itself at all.
What successes has it made so far?
Well, none, to be honest. That's the point. Everything is called a success just to to justify all that red tape and so on. For example, the EU might accept Morocco tomorrow and celebrate it as a great success, or they called it a success when they accepted Cyprus, even though there was no real solution to the conflict with Turkey. Greece, Romania and Bulgaria were all accepted into the EU way too early as well.
Since you mentioned Greece, there's an argument that their problems are primarily the fault of the financial markets. What would you say to that?
The problem with Greece has little to do with financial markets. Certainly, there was a financial crisis in the United States that spread out over Europe, so, in a way, the financial crisis became the accelerator of the European sovereign crisis. That problem existed before, though – there was just nobody really willing to talk about it. The sovereign debt crisis was our own fault, not the financial markets'.
So the EU and its member states have to be accountable for that.
Yes, and not just Greece. The basic problem is that the Maastricht Treaty – the treaty that led to the creation of the euro – is full of far too rigid rules. Not that anyone ever stuck to them, which was the first mistake. When they set up the European Monetary Union, both Belgium and Italy were allowed to participate, even though they had a debt ratio of 120 percent. That was a political decision that defied the economic rules set by the guys in Brussels. It would have been wise to wait a couple of years until everybody was ready, but that kind of hasty, narcissistic behaviour by the officials just proves that the Maastricht Treaty isn't worth the paper it’s written on.
You predicted that the Maastricht Treaty wouldn't work when it was signed. How was that foreseeable?
A simple example is that the treaty doesn’t mention foreign debt. Take Spain; they were exemplary in terms of sovereign debt, but they piled up too much foreign debt and now look at where they are. Debt isn’t something that’s bad, per se, and just looking at the debt alone isn’t very helpful, either. The question must be: What is the money used for? If you encourage investment, then it’s all fine. But if you simply waste it on a spoiled bureaucratic apparatus, like in the South – well…
Let’s get back to Greece. A few days ago, they announced that they're getting a bailout extension of another two years, but Brussels denied that and the IMF weren't positive about it. What's going on with them?
They're playing a game with Europe. You know, it's been said time and time again that Greece won't have to leave the EU and, so far, the Greeks have been in charge; they dictate the conditions and they'll get whatever they want.
How much longer can Greece operate like that?
Forever. You shouldn’t get your hopes up that the Greek system can be changed. All those who profit from it are still in charge and will remain in charge. It’s a hopeless case. It’s crazy that the EU even thinks about sending them judges or tax collectors – we're talking about a sovereign state here, not some corrupt, Third World country. It's simply outrageous that something like that is even considered.
Right now, there's a lot of talk that the best way out would be a fiscal union, or even a political union, as soon as possible. What do you make of that?
Well, before the euro Italy was basically a fiscal union – north Italy paid insanely high amounts to the south for years, but there never was any convergence. It's rational to assume that just the same would happen in Europe; northern countries paying the poorer countries in the south. So the Italian model can't really be a solution.
Now let’s think about the political situation in Europe: the Basques and the Catalans want to leave Spain and there are similar situations in Belgium and Italy. We're simply too different for a political union. The Flemish don’t want to pay for the Walloons, why should Germans and Belgians want to pay for Greece? The growing dissatisfaction with the currency union and the incapability to find a solution is becoming more and more harmful to the peace that the EU is so proud of.
What do you think are likely effects of the crisis in the long run?
Ten years into the future, if countries like Greece haven't dealt with their problems, then Europe will be held responsible. But that simple fact doesn’t seem to have struck those in charge yet. I just came back from a conference in Bucharest where some EU official told us that surely Romania is ready for the Euro. Haven’t they learnt anything at all from Greece? No one will have the courage to break up the Euro, but we should be wise enough by now not to add more countries that aren't definitely up to scratch. One Greece was enough.
What are your thoughts about those who dream of an end to economic growth?
That kind of thinking is very dangerous. The West is at a point of economic success and well-being where we don’t see the necessity to grow any further, but there's still a growth of poverty in Europe. We need economic growth to create jobs, to finance education and to finance our aging society. If we want to keep our wealth, then desiring an end of growth is very short-sighted.
Yeah, it strikes me as wishful thinking from a spoiled society who just want everything to be simple. I suppose none of this matters – China will end up buying us, anyway.
That’s not even that unlikely. I mean, what else are they going to do with their 3,000 billion dollar currency reserves? A company like Volkswagen has a market value of 40 billion dollars, so the Chinese have the means if they want it. The Chinese can't create the same brand value as we've done over the years, so it's easier to just buy them instead of starting new ones. That means that if we really do want growth to stop and don't take any action against that happening, we also have to accept that Europe will be China's Disneyland.
Follow Johannes on Twitter: @JohnVouloir
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