[ExI] Contrary Messages about European Economy

[Lee Corbin]

The tail end of an article about Britain expelling four Russian diplomats

http://politics.guardian.co.uk/foreignaffairs/story/0,,2127731,00.html

ends with these words:

     Despite serious political differences between EU member states
     and Russia, trade and investment are at an all-time high.

     The EU industry commissioner, Günter Verheugen, told
     reporters after talks in Moscow that increasing numbers
     of investors from EU countries were putting their money into Russia.

     "The reality today is a little bit paradoxical," said Mr Verheugen,
     who is also an EU vice-president. "Economic cooperation is
     really booming ... but we have some political irritants, to say the least."

On the other hand, a very large Swedish study compares the
economies of Europe with those of the American states, much
to the disadvantage of the former:

http://www.timbro.com/euvsusa/pdf/EU_vs_USA_English.pdf

"PREFACE

"IF THE EU WERE A PART of the United States of America, would it belong to the richest
or the poorest group of states?

"At the beginning of the 1990s, there was no need to ask. Europe's economic future was
a subject of growing optimism. Productivity growth had for some decades been higher
than in other countries of similar standing, and that growth was now going to be hugely
accelerated by the elimination of trade barriers and the closer economic integration resulting
from the Single Market.

"The EU as an institution was - and was undoubtedly seen as - a vehicle for growth and
economic liberalisation. In other words, the EU was able to do what politicians in
several member countries had wished for but had failed to achieve: to increase economic
openness, to strengthen the process of competition, and harness the political process
behind a liberal reform agenda.

"Today, the perspectives on the EU, and the outlook on its future, are radically different.
Economic growth during the 1990s never became what many had wished for. Some
countries performed reasonably well, most notably Ireland, but on the whole the EU
was lagging far behind other countries during the whole decade. Productivity growth
decreased and by mid-decade the EU was running behind the US in this respect. The
process of convergence in productivity, a much talked-about process since the 1970s,
had once again become a process of divergence.

"The role, and status, of the EU in the economic reform process has also changed. Instead
of a clear focus on economic reforms and growth, the EU (the Commission as well as the
Council) has concentrated its ambitions on other political objectives. Hence, the EU no
longer is - or is seen as - the great economic liberator of Europe. It is generally not
performing as a vehicle for reforms, nor as leverage for policies that are needed but
impossible to accomplish in the national political arenas.

"Is it possible to break the spell of economic stagnation in Europe? Yes, undoubtedly.
But, alas, it seems highly improbable. The member countries have agreed on a relatively
far-reaching reform agenda in the Lisbon accord (yes, in the modern European context it
is far-reaching). But the agenda lacks impetus. Not to say a true awareness of the need
of reforms. Worse still, many European politicians and opinion-formers seem totally
unaware of the lagging performance of the EU economies and that a few percentage
units lower growth will affect their welfare in comparison with other economies.

"Such is the background to this study on the differences in growth and welfare between
Europe and the US. Too many politicians, policy-makers, and voters are continuing their
long vacation from reality. On the one hand, they accept, or in some cases even prefer, a
substantially lower growth than in the US. On the other hand, they still want us to enjoy
the same luxuries and be able to afford the same welfare as Americans can. Needless to
say, that is not possible. But the real political problem is that lower welfare standards -
as with inequality in general - are a relative measure for most people. They are always
viewed by comparison with others, and rarely in absolute terms. People would rather
weep in the backseat of a new Mercedes than in the backseat of a second-hand
Volkswagen.

"This study is based on a widely acclaimed and thought-provoking book - Sweden versus
the US - that was published earlier this year in Swedish by the same authors - Dr. Fredrik
Bergström, President of The Swedish Research Institute of Trade, and Mr. Robert
Gidehag, formerly the Chief Economist of the same institute, and now President of the
Swedish Taxpayers' Association. The study presents important perspectives on European
growth and welfare. Its highlight is the benchmark of EU member states and regions to
US states. The disturbing result of that benchmark should put it at the top of the agenda
for Europe's future.

Fredrik Erixon
Chief Economist, Timbro"


Of course, for many historical reasons the Americans had or still
have many advantages in setting up shop on a relatively unihabited
continent (after smallpox and other diseases did their work). On
the other hand, America purportedly has a number of economic
freedoms yet to be attained by the Europeans, though I suppose
that the creation of the EU was a good start. But, as in the preface
above, the authors are critical.  The charts in the PDF file are
fascinating.

Lee