By Roberto Savio* | IDN-InDepth NewsAnalysis
ROME (IDN | Other News) - The European Union has asked its citizens to brace for further economic misery. In a report on European economic prospects released on May 3, the European Commission said that further deterioration is expected to last at least until 2015. But, as every such report says, things will then get better!
Unemployment in the euro area is expected to climb to 12.2 percent this year, up from 11.4 percent last year. In Spain, unemployment will rise to 27 percent, up from the 25 percent of last year; in Portugal it will rise from 15.9 to 18.9 percent; and after three brutal years of suffering, in Greece it will climb by 2.7 percent to 27 percent. The trend will become devastating for young people: in Spain alone, it is estimated that 52 percent of young people will be without a job. We are creating a generation that will probably never get back on track.
The same trend is happening also in the rich countries of northern Europe, which are being brought down by the reaction of imports from impoverished southern Europe. The German economy is expected to grow this year by a mere 0.4 percent, and from Austria to the Netherlands, the picture is one of decline.
This crisis is sapping the foundations and the identity of Europe. Since the end of the Second World War, Europeans have come to expect a social safety net which would cushion the less fortunate until they were able to spring back to work and dignity. Compared with the American dream, in which anybody could achieve the highest economic and social status through individual effort, without meddling by the state, this European dream was very different.
Now, however, most economists agree that this dream has become very distant because there is no way that the economy can lift many people any longer. In Europe, austerity is eliminating the social safety net. It is indicative that in Spain, for example, saving the banking system has cost more than all the cuts that the government has made in the country’s education and health sectors.
But while United States and Japan have taken the road of economic stimulus, injecting massive quantities of money into their systems every month, and already with some visible results, Europe has taken the opposite direction. The European policy is to cut public spending and raise taxes simultaneously as the recipe for eliminating deficits. And, despite clearly available facts and despite the declarations of some accepting the need for growth, this policy is not changing.
During the visit of newly-elected Italian Prime Minister Enrico Letta to Berlin on April 30, German Chancellor Angela Merkel said: “I think budget consolidation is now interestingly labelled with the word austerity, which is otherwise not used in Germany. We did not even know this word before the crisis.” And her Calvinist Minister of Finance, Wolfgang Schauble, echoed: “Growth and austerity are perfectly compatible.”
Losing the gloss
Besides losing its gloss, the European Union is fostering a growing resentment. On the same day the European Commission report was released, the strongly anti-Europe United Kingdom Independence Party (UKIP) registered a major success by taking 25 percent of the votes cast in local elections in the United Kingdom. Similar parties are now growing everywhere, from Belgium to the Netherlands, from Austria to Finland. And, for the first time, a similar party – Alternative für Deutschland (Alternative for Germany) – is now running in Germany with a platform to leave the Euro.
The lack of effective leaders who are up to the task is allowing the cracks in Europe’s foundations to grow. Southern Europe has an elusive leader in Spain, Prime Minister Mariano Rajoy, who enjoys a comfortable majority in parliament but is vilified every day by demonstrators throughout the country. In France, President François Hollande also enjoys a solid majority but he now has the approval rate of only 25 percent of the electorate. Portugal has an almost identical situation. Greece has Syriza, the anti-austerity and anti-Europe party that is moving closer to the country’s traditional parties. And Italy now has a government with an uncertain future, with a young prime minister for an old policy.
Symbolic of the decline of the image of the EU is the announcement from the Government of Switzerland that its labour market is not open any longer to European citizens, who will need to apply for a permit.
Few realise that Italy is a special case of malfunctioning and lack of synchronism with Europe. The end of the Cold War led to the death of the modern Italian political parties, which were created and fuelled by the Cold War: the Communist Party and the Christian Democratic Party, But, in the creation of a new political system, an unparalleled event took place: Silvio Berlusconi, the richest man of Italy, with a powerful media empire, decided to enter politics to escape personal economic and judicial problems. He became a deft politician and ever since Italy has been split between pro-Berlusconians and anti-Berlusconians. This latter camp has brought together the entire centre left and left, and is unlike other European left-wing parties such as the Labour Party in England, the Social Democrats in Germany and the Socialist Party in France.
Those parties predate the end of the Cold War, and were not built to counteract a one-person party like Berlusconi’s People of Freedom Party in Italy. Out of this anomaly has emerged a new Italian political “party”, the 5 Stars Movement, again led very personally by a comedian-turned-politician, Beppe Grillo (who is against the system and is also anti-euro), which is also totally asynchronous with Europe. Until Berlusconi retires, Italy will remain split over him, and all elections will be inconclusive and bring no real political agenda to the centre of debate. Argentineans would probably understand this best, with their country still polarised between Peronism and anti-Peronism.
Values of Europe for Germany
If the old generation of German pro-European leaders, like Helmut Kohl and Helmut Schmidt, were still there, it would probably try to educate the Germans on the values of Europe for Germany. Germans are deeply convinced that they should not put their wallets at the disposal of southern Europeans who work less, try to avoid paying taxes, have spent beyond their means and, instead of swallowing the bitter medicine, expect Germans taxpayers to bail them out.
But a study last year by the Kiel Institute for the World Economy found that, in 2011 alone, Germany was able to save the equivalent of 11.1 billion US dollars. This was because it could borrow money at much cheaper rates than southern Europe. And last month, a study by Germany’s Bertelsmann Foundation claimed that to leave the euro would cost Germany the equivalent of some 1.6 trillion US dollars over 13 years, cutting Germany’s gross domestic product by an average of 0.5 percent between 2013 and 2025.
The whole of Europe is waiting to see what will happen in the September elections in Germany. The Social Democrats are less pro-austerity than Merkel, but in all probability she is going to win. Will she then change her stand against everybody, including even the International Monetary Fund, which is decrying the excesses of austerity? Nobody knows, but many hope.
Meanwhile, the world is not stopping to give Europe time to solve its internal weaknesses. Just read the Report of the US National Intelligence Council on global trends until 2030. Among others, the US, European and Japanese share of global income is projected to fall from 56 percent to 26 percent in 2030. In 2008, China overtook the United States as the world’s largest saver (and it is close to overtaking Europe), and by 2020 emerging markets’ share of financial assets is projected to almost double. Any further European decline would hasten those projections. So, time is not on Europe’s side.
*Roberto Savio is founder and president emeritus of the Inter Press Service (IPS) news agency, publisher of Other News and editorial adviser to IDN-InDepthNews. This article is being posted by arrangement with the writer. [IDN-InDepthNews – May 20, 2013]