THE THREE OLD MEN OF EUROPE CRUMBLING

EU contemplates expulsion of founding members

Tomorrow the EU will table a proposal to jettison three of its founding members.

For years Britain’s Sir Tony Blair had warned that Europe was falling behind the world race for competitiveness. Many sat up and listened. Britain heard and acted. But, it was Europe’s ‘three old men’, Germany, France and Italy who didn’t hear the sound of the impending tsunami.

In 2005, Germany’s inability to elect a new leader signaled that something was deeply amiss. In France, it was the race riots and the capitulation of the government to young voices against new job legislation. Today, Italy has it’s eighth government this decade, and the tipping point was the moment that totalitarian Berlusconi was forced out of power.

All three countries are today run by fragile coalitions that cannot take any meaningful decisions for fear of alienating their coalition partners. They are like rabbits caught in the headlights of the world’s economic boom.

Germany’s manufacturing exports have slumped due to China’s falling growth rates and they do not have the products to support India’s high-tech boom. Italy’s fabled small companies are being choked by red tape and indecision. France is still inwardly-focused and has no national strategy to integrate with the global economy.

None of these governments has yet been able to create a spirit of entrepreneurship and innovation. Unemployment rates have soared to almost 10%.

Germany, Italy and France will certainly try to veto tomorrow’s proposal but the majority of new EU members see no other viable future for the Union.

Martin Wolf, Britain’s EU stalwart, said today, “These countries seek a miraculous combination of absolute job security with rising prosperity. In a rapidly changing world this is a form of collective cognitive disorder.”


ANALYSIS >> SYNTHESIS: How this scenario came to be

Snapshot 2006

  • Nearly three out of four of the world’s top IT companies and half the top 300 firms ranked by R&D spending are American.
  • China and India are producing twice the number of science graduates than Europe and the USA together.
  • Germany was the world’s top exporter in 2005, and most of its exports went to equip China’s booming manufacturing sector. It is extremely susceptible to any change in China’s growth rate and development of its own R&D capability.
  • While Germany’s export performance has been improving on Chinese growth, that of France and Italy has slumped.
  • China has trebled its spending on R&D in the past five years.
  • Germany, since unification, has become increasingly ungovernable.

On any relative index of a modern economy, Europe, and especially its three ‘old men’, Germany, France and Italy, are falling badly behind.
Previously, Germany, Italy and France regarded Euro-zone membership as a free lunch – today it’s proving to be a bitter medicine.

2006: Tony Blair interview puts Europe on notice
Despite massive Labour Party problems at home, Tony Blair continues to stress the need for increased European competitiveness:
“Complaining about globalization is as pointless as trying to turn back the tide. (India and China) are not worrying about threats but are busy seizing the opportunities in ways that are transforming their societies, and ours as well. I am proud that the UK’s economy has grown twice as fast as Germany’s and four times as fast as Japan’s since 1997. I am, however painfully aware that China has been growing three times as fast as the UK.
“Success will come to those companies and countries which are swift to adapt, slow to complain, open and willing to change. The task of modern governments is to ensure that our countries can rise to this challenge.”
Against that task, Germany, France and Italy are shaping up badly.

2008: Reforms hopelessly inadequate
It’s not that Europe is not reforming – it’s just that many of the reforms are knee-jerk and hopelessly inadequate. The politicians have become reluctant to address the real issues for fear of voter backlash – their fragile political coalitions just won’t stand for any tough measures.
Italy, Germany and France have fallen into the trap of confusing activity with progress.

2009: Europe’s unemployment leads to war on immigrants
The estimated unemployment numbers have now reached almost 50 million people. In France, race riots are commonplace. German manufacturing has been decimated by continued off-shoring to lower-wage countries and the pending changes in the automotive industry.
In Italy, a combination of extremely low birth rates and increasing unemployment has given a political boost to ultra-right parties, fuelling a war on ‘illegal immigrants’ – a voice that is finding fertile ground in Germany and France also.

2010: Dissonance in the EU
The EU is coming to terms with the reality that its historically most important countries have “fragile governments presiding over disgruntled populations”, according to Martin Wolf, and that that is not going to change anytime soon.
The ‘old men’ are in danger of making the EU impossible to operate on a day-to-day basis by trying to change the rules of membership to suit their failing economies. They are undermining the European Commission and fragmenting the ideal of a single market. They have already prevented new nations joining the EU and are blocking negotiations with the WTO.
The coming vote will threaten the continued membership of Germany, France and Italy and could destroy the very idea of a European Union and a common monetary area.

Warning: Hazardous thinking at work

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