Gordon Brown: History will charge Europe's leaders with West's decline
Europe doesn't just have a debt problem. It has a banking and growth problem. And leaders must recognize this as not just a Greek or Irish emergency, but a European crisis that needs cooperative, comprehensive solutions.
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And even now a fundamental truth about the current state of European banks remains unspoken: that German, French, Italian, and British banks that have lent recklessly to the periphery are owed billions not just by the Greeks but by the Irish, Portuguese, and Spanish, and have losses still to take from toxic assets and the real estate collapse.Skip to next paragraph
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And when, years from now, people explain why Europe slept, they will also explain how, out of short-sighted self-interest, we treated the Greeks’ problems as if they were ones of liquidity (addressed by giving loans), not solvency, and how by short-term maneuvers to delay the necessary denouement, we maximized the risk of a disorderly end-game. Indeed, with interest rates on the rise, capital outflows from all the periphery countries to the core are already making funding more difficult in each troubled country, dragging us into even higher interest rates, longer recessions and, possibly, higher deficits.
Europe's chronic growth problem
The third side of the triangle is, of course, low growth itself, which threatens to condemn the whole continent to a decade of high unemployment. The deficit reduction and bank stabilization we need to see cannot become entrenched without economies which generate trade, jobs, and growth. Yet, suffering from anemic levels of growth, Europe is slipping further and further down the world league – not acutely but chronically, which is more serious and much harder to reverse.
Today, European unemployment is stuck around 10 percent, with youth unemployment rising above 20 percent and as high as 40 percent in Spain. And it cannot come down fast. Europe now has a trend rate of growth which is almost one-half that of the United States and one-quarter that of China and India. Once, Europe represented half the output of the world. By 1980 this had fallen to one-quarter. Now it is less than one-fifth – just 19 percent. Soon it will be little more than a tenth – 11 percent by 2030 – and then it will fall to 7 percent.
By 2050 – less than four decades from now – the European economy could be smaller than that of Latin America. If European growth continues to run so far behind its competitors, then by mid-century it may be as small as Africa’s.
Yet Europe is only half as well equipped as America to export our way to growth. Despite Germany’s success in China, only 8 percent of our exports (in contrast to America’s 15 percent) go to the eight fastest-emerging market economies, what are now called the growth generators, that will account for the majority of future growth.
Three interwoven challenges need comprehensive strategy
It is clear that each of these three concerns – deficits, banking instability, and low growth – is interwoven with the other in a way that makes policies designed to focus on only one issue much less effective than a comprehensive strategy aimed at simultaneously resolving all three. And a pan-European strategy is all the more necessary because the euro was constructed without any mechanisms for averting or resolving crises – and with no agreement on who is ultimately responsible for financing crisis costs.