European Union
American Spectator articles from the "topics" department.
- Deficit of Courage
In recent Newsweek article, German finance minister Peer Steinbrück criticized the recent stimulus measures proposed by UK Prime Minister Gordon Brown, remarking, "The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."
Brown wasn't pleased. But no one took the barb more personally than the self-appointed champion of Keynesianism, the Nobel laureate Paul Krugman. He mocked German Chancellor Angela Merkel, who has steadfastly refused extra stimulus measures proposed by the EU, as "Frau Nein." He derided German leadership as "conservative politicians, clinging to an out-of-date ideology," a wishful characterization since Steinbrück is a card-carry member of the Social Democratic Party.
Most of the EU shares Krugman's disdain, even though it seems that the Germans are being quite Keynesian. Merkel agreed to the EU's 200 billion-euro stimulus package and passed a 32 billion-euro stimulus in Germany, with plans to consider another 30 billion plan in January, after Obama takes office.
The sticking point is that Germany, which ran a balanced budget last year and is in surplus this year, has refused further measures, especially tax cuts modeled after the UK's 2.5% cut of the value added tax (VAT). Steinbrück panned the British VAT cut, saying the only effect would be to raise Britain’s debt to “a level that will take a whole generation to work off.”
THE REASON GERMANY has parted ways with the rest of the EU and the U.S. on this issue is that Germany has practiced sensible fiscal policies over the past few years. Steinbrück characterized Europe's attitude as "let's get the Germans to pay because they can," and he's almost certainly right.
The credit crunch would not have posed an insurmountable obstacle in Germany alone, where consumers and companies have savings and cash on hand. But since the Germans rely so heavily on exports, especially those of high-end cars, the lack of demand in other countries affected them as well.
With that in mind, Merkel and Steinbrück approved the 32 billion-euro stimulus package. But they draw the line at incurring excessive debt to placate their less responsible neighbors.
In the UK and elsewhere, the crisis came after years of housing bubbles and budget overruns. For the UK, deficit spending has a different meaning than it does in Germany. The UK's debt is set to double next year, and is trading at a higher price than McDonald's debt in the credit default swap market -- meaning the market thinks it is riskier.
Why should Germany also sacrifice its hard-won fiscal stability?
Krugman made the point that since the EU is highly integrated, an uncoordinated fiscal stimulus would be far less effective than a coordinated continent-wide measure. Any country unilaterally pursuing deficit spending would bankrupt itself when about 40% (the amount of GDP that EU countries spend on imports) of the spending benefited other countries.
For the rest of the EU, desperate for massive stimulus, the Germans' obstinacy reeks of nationalism. They must either abandon coordinated stimulus entirely or give Germany a free ride.
Nationalistic or not, it's a reasonable choice for Germany. Jean-Claude Trichet, the president of the European Central Bank, warned the rest of the EU that fiscal indiscipline would not be tolerated for the sake of deficit spending.
Furthermore, the Financial Times reported, Trichet argued "that the European Union's 'stability and growth pact,' which sets rules on public deficits and debt, offered flexibility to countries with stronger finances.…Mr. Trichet’s comments on the need for fiscal discipline could offer some comfort to Berlin…"
So the rest of Europe, suffering because of its lack of prudence and restraint, lashes out at Merkel for maintaining hers. Apparently Germany is not free to maintain sanity when the rest of the EU, panicked, resorts to Keynesianism.
BARACK OBAMA AND incoming Treasury Secretary Timothy Geithner should take note. Massive deficit spending is the province of desperate European leaders, and not something to be countenanced merely because Paul Krugman and Gordon Brown demand it.
The U.S. stumbled into the crisis in similar fiscal condition to the UK's. Now Obama is weighing a public spending plan that would add $1 trillion to the deficit, in a reprise of FDR's New Deal. Profligate spending didn't work in the '30s, it led to crippling inflation in the '60s, and it should not be on the table today.
The lesson from Merkel and Steinbrück is clear: with a little backbone Obama wouldn't need to add $1 trillion to the deficit. What are the odds he'll listen?
- European Fantasies
Barack Obama's election as president has triggered hysterically high hopes at home and abroad. The frenzied reaction of Europeans to his victory belies the tough issues that he, like any incoming president, will have to address. Perhaps the most fanciful idea for transforming the trans-Atlantic relationship is the European desire for an "equal partnership," in the words of Karsten Voigt, in charge of U.S.-German relations at the German Foreign Ministry.
The European Union already is America's economic equal, though the U.S. retains the advantage of being a nation rather than a conglomeration of sovereign states. But Voigt hopes for equality in "foreign and security policy" as well. This perspective reflects the objective of political leaders like French (and current EU) President Nicolas Sarkozy, who has made enhancing EU military power a priority. His ambitions only expanded with his diplomatic efforts to end the Russia-Georgia war.
Europe as a great power sounds good in theory. The 27 EU states collectively have the largest economy on earth and a population exceeded only by India and China. Despite obvious differences with the U.S., the Europeans share with America a more liberal political order, a market-oriented, high-tech economy, and a globe-spanning culture. The world geopolitical summit is bound to get more crowded: Russia demonstrated in Georgia that it is not yet ready to yield and China has started its assent. The EU should be joining them.
But in practice the EU is nowhere to be found. Economic power it has, but little political unity. President Sarkozy and others blame the lack of consolidated government on the EU's relative ineffectiveness, and claim that the Lisbon Treaty -- which attempts to create a more effective continent-wide government -- is the answer. Thus the widespread impatience with Irish voters who said no to Lisbon in a referendum last summer. Just make them vote correctly or override their opposition and the EU will be ready to take its place among the world's leading powers, runs the conventional wisdom in Brussels and national capitals across Europe.
However, the Eurocrats who see process as more important than substance have the relationship all wrong. Europe does not lack political cohesion because Lisbon remains un-ratified. Rather, Lisbon has not been ratified because Europe lacks political unity.
The U.S. Constitution was controversial when proposed. While the states did not hold referenda to approve the new form of government, they did call popularly elected conventions to consider the document. The public got to vote and, after great argument, decided yes.
The EU proceeded in the opposite direction. When the European constitution was originally proposed, Danish and French voters rejected it. So the continent's Eurocratic elite dropped a handful of provisions and called the revised document a treaty, allowing it to be ratified by parliamentary rather than popular vote. The agreement's backers recognized that only by preventing the European people from having any say could continental consolidation continue. Although polls indicate that a majority in every EU member would like to vote, and in half of the countries a popular majority would vote no, of the 27 EU members only Ireland scheduled a vote (mandated by the Irish constitution).
Even if the Irish obstacle eventually is overcome -- some Eurocrats advocate tossing Dublin out of the EU if it won't recant -- Lisbon won't turn Europe into a country. If average Europeans won't vote for a more powerful government in Brussels, how could EU leaders claim to represent people opposed to the new government institution? How many Europeans would view the new system as their own? How many would fight for Brussels? America achieved its greatest single episode of government consolidation in the midst of violent conflict, the Civi