Europe is wavering. Four years after the financial crisis, the European economy is still in a terrible condition. Public debt has skyrocketed, budget deficits are gigantic and the unemployment rate in the euro zone is over eleven per cent. The social need is urgent and there is no sign of better times. In short, the future looks gloomy.
This was not how it was supposed to be. In year 2000, the EU adopted the Lisbon Strategy. By 2010, Europe should have evolved to be the most competitive and sustainable region. The economy was supposed to flourish and the standards if living were going to go up. It all started well: the union had a common currency, and the East and West were united in 2004 when eight former Eastern Bloc countries were incorporated in the union.
During a couple of fateful autumn weeks in 2008, the international financial system breaks down. The credit markets dry up and throw the world into recession. As the months go by, it becomes clear that the state of the European economy is more alarming than anyone had imagined. It turns out that Greece has systematically reported the state of their public finances erroneously. In Ireland and Spain, a housing bubble of monumental dimensions toll on the national economy, and in Italy a longstanding political mismanagement is in the process of running the country bankrupt. Also, European superpowers are struggling: formerly strong industrial countries like England and France are struggling with rising unemployment rates and huge expenses compared with income. And central to it all – a scenario that was unthinkable just a few months back in time—the euro on the brink of collapse.
When the euro was created many economists worried. A common currency for a myriad of countries was created—all with different fiscal policies, industry and challenges. It was a typical European project, full of compromises and disagreements. They wanted a monetary union, but the countries were not willing to give up control over their own budgets. Problems had to be handled as they came. It was inevitable that the joints of the Euro began to creak in 2009.
Four years after the financial crisis, Europe still flounders on the brink of oblivion. Little has happened, except that unemployment rate has become even higher, and the national debt has grown even bigger. Most countries cut hard in the budgets. Salaries are frozen, benefits are cut and pensions are lowered. Across the continent, the public sector has been put on an extensive diet. The EU is stuck in a vicious circle. When budgets are cut, the activity in an already weak economy is reduced. Demand for goods and services decreases. As a result, people lose their work and the state loses tax revenue. Expenditures for social security and aid explode. The debt increases and the state losses are as great as ever.
There are no easy solutions to the crisis. The EU has for many years lived on borrowed money where unpaid loans have been funded through the admission of new loans. While they are knee-deep in loans, we have seen a deindustrialization without equal. European industry has been closed down in favour of an economy based on the sale of goods and services. The result: an ever-increasing consumption and a steadily declining production of valuables.
What will the future look like? Europe is definitely facing great challenges. Restructuring must be done in most parts of society. New industries must be developed, the public sector must be balanced and one must allow for the generation shift coming ever closer. In all this, one must also ensure that the population is not pressed too hard. The last years have been four hard years and if people lose faith in a brighter future, it is a short step from order to chaos. We see it already. Large demonstrations are commonplace, and political extremities are gaining support. Politics must be balanced if the union is to stand a chance. But Europe has seen hard times before. With a fair distribution of burdens, and cooperation instead of internal discord, perhaps the continent can once again rise from the ashes. We live in exciting times.
18 October 2012
