Krugman's US-Euronomics

Consider this an info-dump of Nobel Prize winner Paul Krugman's latest postings at the New York Times. If this seems like something of an antidote to EurAmerican's atypically hawkish and euroskeptic posts from this week's Wall Street Journal, so much the better. Balance in partisanship -- that's what we like!

Krugman's pieces grow from the spark provided in this piece, also from the NYT, which takes the pulse of the current "we told you so" debate going on between Europe's solvents and debtors. It traces the germinations of the euroskeptic debate back to an obscure 1992 report from the Financial Times. In it the politologue Ed Balls observed a crucial and possibly disastrous difference between the nascent euro currency project and the environment of the US, another continent-wide monetary zone. The report concluded, to borrow the NYT piece's shorthand, that "Europe lacked the type of federal taxes and transfer payments used in the United States to ease economic divergences among its many states." 

Courtesy The New York Times

The NYT piece goes on to juxtapose prominent voices from the euroskeptic and the pro-EU antipodes. Speaking about the current troubles, Norman Lamont, the former Conservative chancellor of the exchequer, had this to say about the euro in the near future:

“I have always said that the euro will break up,” Mr. Lamont said in a recent interview. “Not after the first crisis today, but after the second crisis, which could be 10 years away. This is, after all a political project, not an economic project.” 

In contrast, Jerzy Buzek, the current head of the European Parliament, used with these words during December's opening of the Europe House, headquarters of the European Union delegation in London:

“We remember what happened in the last big crisis — it was something horrible, and such a threat is always waiting for us... Let us answer by having more solidarity. Overcoming history is an imperative for us.” 

It bears noting that Buzek's tone on the euro crisis -- which is far from finished ravaging great swathes of Europe and the world -- suggests that the "last big crisis,"  as he puts it, is already past, and belongs to history. These pictures provide a markedly more compelling argument that the euro crisis is both ongoing and far more serious the Buzek's seemingly clueless tone would indicate.

Merkel's Gains in Brussels

Here's a cogent wrap-up, from The Economist's "Charlemagne's Notebook" blog, of the EU economic governance summit that ended late last week in Brussels. Among the demands presented, German Chancellor Angela Merkel argued for -- and won qualified concessions -- for a reopening of certain economic contours held in the landmark 2009 Treaty of Lisbon.

Merkel emerged as the clear winner -- and, it seems, one of the most effective national leaders in the Union.  This is certainly true when compared with Herman Van Rompuy, whom the article insinuates as a kind of EU pipsqueak, out of his depth in the EU's play-for-keeps attitude among the Continent's heavies such as Merkel, Nicolas Sarkozy and David Cameron. The blogpost's takeaway is as follows:

 “I AM on the whole quite satisfied with the decision.” With these modest words, Angela Merkel, Germany’s chancellor, rounded off a remarkable victory at the end of a bruising European summit that concluded today.

Less than a fortnight ago, members of the European Union were universally opposed to Germany’s demand to reopen the EU’s treaties to strengthen the means of maintaining fiscal discipline among members of the euro zone. But within days of winning over Nicolas Sarkozy to her cause at the Deauville summit on October 18th, she got everyone to sign up to the idea of a “limited treaty change”. By the slow-moving standards of the EU, this happened in an eye-blink. It is a testament to the authority of Mrs Merkel, as well as the power of Germany’s constitutional court in Karlsruhe.

“Everybody was very sensitive to Mrs Merkel’s persuasive arguments,” is how one national diplomat put it. “Bullying,” said another. Whether by persuasion or compulsion, Mrs Merkel secured her main objective: agreement to amend the EU treaty to allow the creation of a “permanent crisis mechanism” to resolve the debt of countries that may be hit by a Greek-style crisis in future.

This means creating a bail-out fund similar to the €750 billion IMF-backed temporary financing facility that was created in May, imposing tough conditions on any country that taps it in future and making bondholders take some of the pain of saving insolvent countries. “The burden must never again be borne simply and only by the taxpayer,” she declared." (...)

This may turn out to be a baby step toward tighter EU integration, at a time when member states can hardly maneuver otherwise -- and would hardly choose to do so in sunnier times. Once the tight belt of the recession loosens, we'll see which European country strains for more room to breathe. 

German Pride, EU Crisis, and the US

Check out this big-picture perspective on resurgent national pride in Germany from the New York Times.  The country that Jurgen Habermas once termed the "self-absorbed colussus," crippled with guilt over two world wars, the horrors of the Nazi-led Holocaust and global acrimony spanning generations is now staging a comeback -- to itself. 

The historically conflicted "German-German relationship" of its citizens could be showing signs of thaw, evident in new roles of German prominence from crisis-time leadership in the European Union, to its soccer team's success in this summer's World Cup to the current preponderance of German acts on European pop charts. From the article:

“Maybe it’s our time again,” said Catherine Mendle, 25, a school social worker strolling the grounds and halls of the square glass and concrete Chancellery building on a recent afternoon as part of a government open house. A military band played in the background, and Mrs. Merkel signed autographs for curious visitors.

“We have this extreme helper syndrome, to try to make the world love us again, and it’s completely overdone,” Ms. Mendle said. Germany, she said, had been reduced to simple stereotypes — Oktoberfest, auto factories, the Holocaust. Its rich traditions in music and literature, and its enduring emphasis on social welfare and a strong commitment to the environment, deserve more respect abroad and at home, Ms. Mendle said.

And this on German politics and history:

 "... Chancellor Angela Merkel has led a bloc of countries fending off President Obama’s calls for stimulus spending to combat the economic crisis, certain that the world should follow Germany’s example of austerity.

German pride did not die after the country’s defeat in World War II. Instead, like Sleeping Beauty in the Brothers Grimm version of the folk tale, it only fell into a deep slumber. The country has now awakened, ready to celebrate its economic ingenuity, its cultural treasures and the unsullied stretches of its history.

As Germany embarks on this journey of self-discovery, the question is whether it will leave behind a European project which was built in no small measure on the nation’s postwar guilt and on its pocketbook."

It remains to be seen how Germany will deal with its load of problems also shared throughout Europe. On integration, for example, a stark line is drawn between the assimilated and those who suffer the brunt of the global unemployment trend, including immigrants, like the Turkish manual laborers brought in en masse during the 1970s and after. Immigration remains today a question roiled by entrenched opinion, and the European demographics problem doesn't help. The German vision for economic recovery stands at loggerheads with the socialized economic thinking of France, Spain, Italy and elsewhere. 

The risk of playing the EU's rich daddy during the crisis, of course, is that other Europeans won't remedy their economic weaknesses exposed by the 2008 meltdown -- or worse yet, that Europe will come to expect German bail-outs at every hard turn -- both after the crisis and in the long run.

And what would such a reality mean for the United States? Frittered German cash means badly depleted EU capital, both of the economic and political kind. (And on the latter: ask an average American to name three EU leaders, they'll likely say "Uhh," "Hmm" and "What?") Skeptics and Euro-Doomers are already airing bold claims that "Europe is history" -- and that particular damning, from IHT editor-at-large Roger Cohen. 

A healthy future transatlantic relationship is not just a matter of national pride as with the Germans, a growing light within a confused-as-ever European palette. Both the US and Europe want to see a finished EU masterpiece -- not because it should be beautiful, but because it's vital to our common interests.

Belgian Government Talks Fail -- Risk of Meltdown, Splitting of Country

 

The Future "State" of Belgium?

The Belgian national government crisis is again peaking in the red, with questions of separation now being voiced openly by the country's statesmen in Brussels. 

Following the meltdown Friday of negotiations between leading Socialist Laurette Onkelinx and separatist Flemish leaders for a coalition government, Onkelinx warned that the world should "get ready for the break-up of Belgium."

Even as King Albert II attempts to restart talks between the seven-party patchwork currently working toward a more stable Belgian government, the dysfunction is reeling and risks pushing the country into political chaos.

The underlying problem traces back to dissent between Belgium's two main linguistic communities, the French-speaking Walloon and the Dutch-speaking Flemish. The threat of Flemish secession has loomed with real potential since 2007, when a fractious multi-party coalition took nine months to solidify. Scarce public confidence and musical chairs among senior leaders only perpetuated the rift. 

In 2008 the high-profile Flemish figures Yves Leterme stepped down from the prime ministership to allow Herman Van Rompuy into power in December. Van Rompuy was called just eleven months later to take up the immensely demanding post of President of the European Council. Leterme then returned to his former seat as prime minister, only to see talks founder in April 2010 amid party disputes and overall dysfunction.

The Belgian political scene risks to devolve further if leaders and parties fail to cobble together a government, make it function and keep it working over time. 

Chiefs of the Belgian government in Brussels have chosen words with unusually strong tones on the prospect of a split. Francophone socialist Philippe Moureaux has warned of a "progressive organization of separation." Another senior from the Wallonia state government has expressed that "all options" are possible.

"Let's hope it doesn't come to that because if we split, it will be the weakest who will pay the heaviest price," Onkelinx, the francophone leader, has said, as reported by Agence France Presse.  "On the other hand, we can no longer ignore that among a large part of the Flemish population, it's their wish [to separate]... Loads of people think it's possible. (Our) politicians have to be prepared."

Some have dismissed Onkelinx's remarks as exaggerated. But almost all observers agree that such statements could rock not only the Belgian political scene, but far more broadly, European markets.

"I'm afraid the political parties are playing with fire," said Philippe Ledent, a Brussels-based economist at ING, in a Reuters wire. Continued rancor in the Belgian government could impact public finances and the country's stable image abroad. 

Some pessimistic Belgians fear that Belgium may take on a reputation as the "Greece of the North Sea," an echo of the Mediterranean nation's severe deficit woes in the last year. 

Italy and the Dimming of Old-World Artisanship

The sensibilities of old-world artisans and 21st-century economic forecasters collide in this NY Times article on the sinking industry of Italian textile manufacturing. Veteran clothier Luciano Barbera claims "this tradition is finita," lamenting the demise of his label with its "spa for yarn" where the Barbera line alchemizes its top-end menswear -- and tries to sell $4,000 suits in a global recession. 

Meanwhile, American outsourcers such as Jos. A. Bank are doing just fine, with the Maryland-based brand reporting $770.3 million in profits over the last fiscal year. Is this another death knell for Old Europe traditions, precipitated by globalization?

For Italy in and of itself, economist Francesco Giavazzi deplores the white-knuckle grip of the "associazioni di categoria" and other guilds and unions on the Italian economy. The article describes:

"... Economists said that worrying about [the decline of artisanship] was like fretting about the head cold of a patient with Stage 3 cancer. They see a country with a service sector dominated by guilds, which don’t just overcharge but also raise the barriers to entry for the millions in ill-fated manufacturing jobs who might otherwise find work as, for instance, taxi drivers. They see a timid entrepreneur class. They see a political system in the thrall of the older voters who want to keep what they have, even if it dooms the nation to years of stasis. 

They see a society whose best and brightest are leaving and not being replaced by immigrants, because Italy has so little upward mobility to offer. 

To Professor Giavazzi, the future here doesn’t look like Greece. It looks like Argentina. 

“Before World War II, Argentina was rich,” he says. “Even in 1960, the country was twice as rich as Italy.” Today, he says, you can compare the per capita income of Argentina to that of Romania. “Because it didn’t grow. A country could get rich in 1900 just by producing corn and meat, but that is not true today. But it took them 100 years to realize they were becoming poor. And that is what worries me about Italy. We’re not going to starve next week. We are just going to decline, slowly, slowly, and I’m not sure what will turn that around.” (...)"

Europe the profitable?

One could do worse than to take a lesson from The Economist magazine on straddling European and American market perspectives. A recent editorial describes "Europe's dark secret" on the prevalence of free-market capitalism in Europe, with a special focus on France, bête noire of those in the US who would paint the land of May '68 as antithetical to free and unregulated market economics.

The Hexagon is indeed far more capitalist than even its center-right President Nicolas Sarkozy can admit publicly without political points lost. France's commonly-thought anemic business sensibilities have still produced goliaths like Airbus, Axa, Areva -- and those are just some A's from the French corporate alphabet... To say nothing of the tax-revenue factories (and how they are taxed) in Spain, Italy, the Netherlands, et cetera. This op-ed excerpt demonstrates the might of French and European market performance globally:

"Perhaps, however, it is time to let the French, as well as other corners of market-averse Europe, in on a dark secret. The truth is that theirs is a capitalist society. For while Europe’s leaders rail against profits and wealth, its firms stride into new markets and rack up giant profits. Spain’s Inditex dresses men and women in Zara outfits in 76 countries. Belgium’s Anheuser-Busch InBev, which makes Budweiser, is the world’s leading brewer. France boasts more Fortune 500 companies than Germany. A French company, Sodexo, is chief caterer to the American marine corps."

Such rarefied market status seems easily enviable by aspiring corporate empire-makers, whether they hail from the business-ho culture of the United States, or the more socialized (yet apparently, equally profit-minded) République.

This comes alongside new calls from Berlin and Paris in the ongoing project to build an "economic governance" model for Europe. And it seems to sketch a schizophrenic portrait of European realities just at a time when the bloc seeks unity of thinking -- and action -- on economic cooperation following the current recession's arrival in 2008. Watch this space for more on the EU's paradoxical, if not downright contradictory, economic maneuverings.