The European Malaise

As the world appears to erupt in flames – from an invasion of Ukraine, the Islamic State threatening vast parts of the Middle East and Hamas threatens Israel, riots grip Ferguson, Missouri, Boko Haram kills and kidnaps in Nigeria, and increasing numbers of Americans and Westerners volunteer for vicious terrorist training, etc., etc. – it’s easy to miss the less visual stories developing around the earth. Although the above monstrous events most certainly impact just about everyone everywhere, there are huge economic stories that represent the continuing deteriorating of Western Civilization against raging developing economies that are growing despite grappling with local environmental and corruption issues.

I have blogged about how the United States has used a growing stock market, escalating real estate prices and seeming rising employment rates are statistics that mask rather than reflect a country unable to pay its bills, educate most of its children to new global competitive standards, fix and expand its infrastructure to modern standards or generate the kinds of jobs that actually provide solid pay and opportunities for both advancement and long-term sustainability. Folks invest in real estate and the stock market because there is no place else to put investment capital. The job creation we see is mostly at the lower reaches of pay and opportunity, with too many contract workers, part-timers and those who have given up looking. Higher pay masks that higher costs have eroded buying power for over a decade, contracting our middle class and polarizing wealth. But even with those false numbers, we are better off than most.

But what about Europe? They barely crept out of the Great Recession, but they seem stalled. They are willing to accept the invasion of one of their own – Ukraine – in exchange for continuing flows of oil and gas from the aggressor out of fear and desperation. Anti-Semitism is rampant – a European tradition when the economy gets bad. Without their social safety nets, the optics of poverty would be infinitely worse. Russian, Middle Eastern and Chinese mega-wealthy buyers are sucking luxurious properties in their major capitals and along their golden coasts. For most Europeans, however, the news is bleak, and a new, perhaps lesser recession is coming on. Perhaps it is part of the big “Reset” as the Western world slides away.

“Even as the United States economy rebounds from its worst recession since the 1930s, Europe is heading in the opposite direction. A halting recovery that took hold in the 18-nation euro currency bloc in the last year has now gone into reverse as Germany, France and Italy, its three largest economies, stumble anew. Some analysts say the region could be headed for another full-scale recession — a slowdown that could have ramifications in the United States, Europe’s biggest trading partner. For American companies that do business in Europe, profits would suffer.

“Germany, the Continent’s economic engine, contracted in the second three months of the year, while the bloc of 18 European Union nations that use the euro failed to grow at all. Political and financial instability related to Russia’s confrontation with Ukraine and the effects of escalating economic sanctions between Europe and Russia have further clouded the economic outlook.

“Unemployment, which in the United States has fallen to 6.2 percent from a peak of 10 percent in 2009, has fallen only marginally in Europe, to 11.5 percent in July from a peak of 12 percent last year, according to figures released on Friday.” New York Times, August 29^th. To put it mildly, Europe is terrified of its own future, is vastly geographically closer to the violent turmoil that infects most of the world and its regulators are rather significantly out-of-touch with reality.

In a world that doesn’t know what the world will look like in five years, they’ve managed to extend copyright protection to 95 years or more (and the United States has stupidly followed suit). Every corner of Europe is regulated. While I am a passionate believer in solid environmental and financial regulations, I am equally opposed to over-regulation to activities that try to reverse irreversible social, media and work trends. Europe, under the guise of “we’re more civilized,” seems to be fomenting uncivilized responses by passing rules that simply kill natural growth factors.

The German “austerity” model has failed, and except among a few remaining Teutonic diehards, it is a policy that is uniformly despised. But Europe is also void of new ideas on how to restart their stagnant economy. “The fresh downturn has worsened tensions between European leaders and Chancellor Angela Merkel of Germany. Ms. Merkel continues to stand by an austerity program that she considers essential to financial stability, but that many critics now say is only deepening Europe’s woes and leaving it at risk of losing a generation of growth.

“The situation has placed additional pressure on Mario Draghi, president of the European Central Bank, to act more aggressively, much as the Federal Reserve has in the United States, to stimulate the economy through bond purchases. In a speech last week at a Federal Reserve conference in Jackson Hole, Wyo., Mr. Draghi for the first time challenged the austerity consensus, suggesting that European governments might need to relax their budgets in the short run to give their economies a kick…

"Still, France, Italy and a number of other countries are likely to press within the European Union in coming months for a loosening of deficit-reduction targets for the next several years.

“The austerity program has helped Spain, Ireland and other troubled economies regain their ability to borrow money in the bond markets. But critics say that forcing countries to cut spending and raise taxes to meet fiscal targets while in recession also delayed and weakened the economic recovery, impeding job creation and income growth… Ms. Merkel, while agreeing that growth is important, continues to rebuff calls for a change in German policy.” NY Times. If government stimulus doesn’t kick in, the European economy may kick the bucket.

Indeed, Europe could have inadvertently created a “lost generation,” a vast body of its citizens who will have missed out rather completely on the jobs and growth benefits of past (and hopefully future) generations. If this malaise continues and the recession comes back, they are unlikely ever to recover. If you think that “that’s Europe’s problem,” think again. Our own economy is linked to what happens in the rest of the world. Not only is Europe one of our biggest trading partners, but as fear and right wing policies reshape Europe, drawing it inwards, the United States is going to find itself further isolated as it rises to meet global disasters and instability.

 I’m Peter Dekom, and it is no longer possible for the United States to close its borders, ignore the rest of the world and expect prosperity.