Monday, July 26, 2010

The Economist: July 10th-16th, 2010 Issue

"Can anything perk up Europe?" Re-phrased, can the European Union make the short-term changes necessary to survive in the long-run, let alone take back preeminence as a world entity? With the largest economy in the world, the EU has been put in a place to make tough political decision by the global recession of 2008-2009 if it wants to avoid collapse. In contrast, China has created an extremely successful banking system and under its current model, only one thing can "guarantee its demise: success". In both cases, government will need to make significant changes if they are to achieve long-term prosperity.


Can anything perk up Europe? Econmist cover.




FEATURED STORYLINE: (Germany and France have drastically different ideas about EU reform)
Can anything perk up Europe? (p11-12),
Staring into the abyss (p23-25),
Lemon aid (p52), &
The neighbors fall out (p55).

Staring into the abyss

_______ The European Union itself is a very liberally progressive entity. The trading bloc is without a doubt the freest market in the world in terms of trade of labor, capital, and goods and where 16 of the 27 member-nations use a single currency. This has enabled the EU to compete on a global scale with the likes of the U.S. and, more recently, China, whereas individual EU nations would have difficulty alone. Unfortunately, for Europe and the rest of the world, the recent economics meltdown has shown the flaws in political systems of the EU. Economic integration without political reformation has led to an unsustainable system that is destined for failure.
_______ As highlighted by the recent economic downturn, there are difficulties in regulating a central monetary system when there are drastically different spending, saving and working habits that change the money supply, influenced both by law and culture. Culture is something that by and large can't be (an shouldn't be) changed; but in order for the EU to survive, political standardization of certain laws and policies must take place.
_______ "Europe's Big Idea, that rival nation states can do better by pooling some sovereignty instead of going to war" is a good one. But it will have to overcome "Europe's Big Problem, that governments and social protection tend to grow until they choke the economies that pay for them." Success can be achieved "if EU leaders show a little courage" and as Jean-Claude Juncker, prime minister of Luxembourg, put it so well in 2007: "We all know what to do, but we don't know how to get re-elected once we have done it." While it may not be as obvious as Jean-Claude proclaims, it is apparent that "this crisis offers the best chance at since the 1980s." This can be seen in the recent Pew Research Centre survey released in June that asked citizens if they were better off in a free-market economy. "73% of Germans and 67% of French (the most influential EU players) said yes with 65% and 56% respectively the boom of 2007, and it rivals America, with 68%, and eclipses Britain, with 64%" (supporting politically integrated free markets).
_______ "The problem is that the 'European social model' has become, too often, a synonym for a very expensive way of doing things. It has also become an end in itself, with some EU leaders calling for Europe to grow purely in order to maintain its social-welfare systems." It is apparent that the old way of doing things must come to an end. Many European countries became complacent with their position in the world and began instituting social-welfare systems that did not give its citizens an incentive to work hard or innovate. Things like retirement at 60 in France, an inconsistent international patent system between countries in the EU, "rigid labour laws , which make older workers almost unsackable" and has led to 40% youth unemployment, will have to drastically change if Europe does not want to implode on itself.
_______ All is not lost, as some progress is being made. "On July 1st the European Commission announced plans to ram through an EU-wide patent valid in all 27 countries" and "governments in places like Britain or the Netherlands have been able to propose paying pensions at 67, or even 70, without angry protests." However, a lot of the reform is still speculative. Going back to Jean-Claude, it is true that both of these proposition must be put in place, but will the countries leaders have the balls to follow through?
_______ Unquestionably, the two most important countries in the process of EU reformation are Germany and France. Germany has recently emerged as one of the leading exporters in the world, second only to China; and while France has recently fallen from it's pedestal as the political leader of the EU, their opinions and influence have not completely fallen out of favor. As such, it would make sense that these are the two sides leading the debate as to what sort of reform must take place for the EU to survive.
_______ One the right side, you have Germany's proposition: "Germany wants a harsh system of rules, enshrined by treaty if need be, that would ban countries from spending too much they are sick of paying for all of Europe's new schemes." On the left, France wants "things like Europe-wide labour standards and some harmonisation of taxes. They want to oversee transfers of communal cash to the euro's weakest members."
_______ While the German plan may be "unworkable", it seems a more practical solution than France's proposition. France's proposition seems to state that "the point of is to keep globalisation at bay, or at least curb its power Single nations are too small to maintain high-cost social welfare models in the face of global competition. But the EU, with its 500M people, is big enough to assert the supremacy of political will over market forces." In the end, this sort of reform is unsustainable. The EU can only grow so large until other countries pass it by, particularly China and India, and its political will becomes as insignificant as its individual nation states are now.
_______ If the EU wants to keep up with the rest of the world and get out of the tailspin it was thrown into by the recent worldwide recession, it needs to change its state of mind. "The 'European social model'" needs to stop being "a synonym for a very expensive way of doing things." Europeans need to stop retiring early with the expectation that the pension they have coming will be sufficient to maintain their standard of living for the rest of their life. People are finally beginning to realize that the government can't support the current system and that reforms need to take place. It is now up to the leaders whether they bite the bullet and make the changes that may be unpopular, but ultimately necessary.

LEADER: (China's banks are changing the international money market)
Great Wall Street (p13) &
Agricultural Revolution (China now has the biggest bank.. ever) (p69-71)

Great Wall Street

_______ As the EU tries to avoid collapse, China has to figure out how to deal with success. It will be interesting to see how the government handles the throne as the world's leading exporter and soon as the world's largest financial center.

OF NOTE IN THE WORLD THIS WEEK:
The United States federal government does not like that Arizona created it's own law that enforces a federal law and is suing the state in retaliation.
The Chinese government has continued to be a hindrance to international companies within its borders by prosecuting an American citizen for conducting normal business.
The ever-nationalist Australian government wanted to crack down on companies it judged as stealing profits from Australian endowed resources, though the final law was less than anticipated.

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