Here in the US most folks are focused on our domestic economic problems and how they affect the 2012 Presidential election. However our focus on things at home may be blinding us to the trouble abroad. Ironically, how things go in Europe may become the surprise election topic of 2012. Europe is facing a financial crisis unlike anything it’s seen since WWII. The way the continent and its western allies handle its financial problems will play an important role in the financial fortunes of economies worldwide.
Empire Economies
The irony is palpable if you have even a passing acquaintance with Europe's past history of global economic dominance. This continent of relatively small countries by modern standards managed to set up most of what we now consider as the global economy. However it is now facing some of the consequences of its long centuries of success. The old Europe that shaped the markets of the world was based on empire economies. To fund burgeoning economies and industrialization they needed more raw goods than their native soils could produce. This was what led to the colonial system where they dominated foreign kingdoms and states to get their raw resources at cheap rates.
The colonial system still survives in part with many former colonies now developing nations with too few resources or little political will to modernize on the same level as western countries. Europe is now facing some of these same problems with its current crisis. If history played out differently the devastation of World War II in Europe would be irreversible or at least take several more decades to recover from leaving most of Europe in a state similar to its developing counterparts. Europe escaped this terrible fate by banding together and forming a single market along with timely help from the US.
Refusal to Unite
Unfortunately European integration's main weakness lay in the refusal of European nations to unite to the level where the single market could be most effective and reliance on old economic models. Simply put the EU now only has an integrated domestic market and monetary policy. Fiscal policy is still largely a sovereignty issue for its members. The other issue is that its economies are now "hooked" on the raw goods they import. Industries that rely on home grown resources like agriculture are so weak that they rely on EU subsidies to survive. Without a solid base at home and an over reliance on the old periphery center relationships with developing nations the EU has backed itself into a corner.
The EU members for the first time since the World Wars have had their national credit ratings downgraded. To be fair so has the US, but in the past it would take something catastrophic like a famine or war to seriously harm an industrial nation's credit rating. The second major flag is the fact that at the recent Davos Economic Summit European nations increased their pleas for aid from the IMF. If you are not familiar with this organization it should be enough to explain that this organization and its counterpart the World Bank were created to lend money to developing nations to help them modernize their economies to western standards. If the major countries of Europe are seeking aid from these institutions something is seriously wrong.
It would take forever to talk about how these organizations have had only limited success and actually increased the debt burden for Third World nations. However it can be said that the same problem these nations faced are now being faced by Europe's states. So what can be done to stop the coming night?
EU Needs Reality Check
First, the EU has to have a reality check about individual autonomy. Germany may be in good shape but it is there because it shares a domestic market with the rest of the EU. Even if bailing out countries like Greece and Italy is distasteful, it has to do so or face the repercussions of economic proximity to the offenders.
Second, the EU has to speed up fiscal integration. A big source of the current crisis lay with the weak fiscal regulation regime in the EU's governing mechanisms. It only allowed for member monitoring of each nation's budgets. This allowed members to "cheat" on the economic numbers they reported masking the problem until it became almost too big to solve. Integration of fiscal policy would go a long way to preventing future repeats of the current crisis by having more effective warning systems and measures for enforcing fiscal compliance among member states.
Aggressive Action Needed
Finally, bold and immediate action is needed. Any individual country that fought off an economic crisis will tell you it took aggressive action. The EU is still too tentative about committing to major league steps to halt the crisis in its tracks. This is only increasing the cost of recovery as they postpone seriously dealing with the problem.
Right now those in the know about the global economy are watching with bated breath. If the wrong steps are taken the entire global economy and even the success of countries like Brazil, India, and China are at stake. Also the economic fortunes of the West as a whole could be threatened as well.
Sources:
The Economic Times Jan. 26 2012
Tega Jessa - I am a freelance writer who focuses on sciences, politics, and sci fi television and have written on them for three years.
