SHARED STAGNATION:

The European Predicament: Its economy is enfeebled by high taxes and regulations. Unless leaders take unpopular steps today, Europe faces dire consequences. (Robert J. Samuelson, 2/09/04, Newsweek)

In the past year, American-European relations have fixated on Iraq. What's been obscured is how much Europe's loathing of the war has distracted attention from its own failures. Europe's economic model could once be defended as a justifiable political choice. People could select their flavor of prosperity. America's flavor—more competition and insecurity—wasn't for everyone. Europe could pick less anxiety and more vacations. It could sacrifice some economic growth for a bigger welfare state (more jobless benefits, universal health care). This argument no longer works.

Why not? Well, the economy is so enfeebled by high taxes and restrictive regulations that it can't pay for all the benefits. The gap between promise and performance must widen and, in the process, spawn disillusion and discord. One early example involves France's and Germany's violation of the Stability and Growth Pact, which requires member countries to hold their budget deficits to less than 3 percent of gross domestic product (GDP). In 2002 and 2003, France and Germany failed and, rather than face penalties, forced other countries to suspend the rules. Naturally, smaller countries that complied were furious.

Greater conflicts loom. In May the European Union expands to 25 members by adding 10 countries with 74 million people (the largest: Poland, Hungary and the Czech Republic). The presumption is that shared prosperity will promote mutual good will. The danger is that shared stagnation will aggravate mutual ill will. A larger threat arises from aging populations and expensive retirement programs. Government spending in the European Union already averages 48 percent of GDP (the United States: 34 percent). By 2030 the older (65-plus) population is projected to rise 55 percent, while the working population (15 to 64) shrinks 8 percent. Promised benefits can't be paid without crushing taxes or implausible budget deficits.

The point missed here is that Europe's opposition to the war and hatred of an America which wages such wars is fueled by the same selfish disinterest in anything but an exorbitant retirement system.

Posted by Orrin Judd at February 2, 2004 8:29 AM