Tuesday, June 08, 2004

How Americans see it

The Wall Street Journal Europe writes of the European Union and the economic disaster area known popularly as euroland more in sorrow than in anger. In common with many American commentators their writers often appear to believe that the original idea behind the project was the creation of a free-trade area that would then spread the idea of a free economy and free trade to other parts of the world. Only it keeps going horribly wrong and all the attempts that are supposed to overcome problems are shown to be counter-productive.

On Monday, June 7 most of the issue was devoted, naturally enough to Reagan with the Wall Street Journal congratulating itself on being one of the few media outlets that appreciated that remarkable man from the beginning. But one article, by Alan Friedman, looked at the situation in Europe.

Mr Friedman sounded like a man at the end of his patience with the European leaders. He pointed out that for most of June they will be doing nothing but meeting, whether in Normandy, in Georgia, USA as part of G-8, in Brussels for the summit, in Dublin for a session with US leaders or in Istanbul as part of NATO. And in none of those meetings will they discuss the dire economic situation.

There is a slight economic recovery but it is export-led not fuelled by the domestic consumer. Oil price will remain high and that is catastrophic for western Europe. (Yes, that war was about oil but not the way commentators put it. It was the opposition to it that was about oil.)

The ECB will not now cut interest rates because it fears inflation being fuelled by oil prices. The 2004 growth is likely to be 1.5 per cent, about one-third the rate of the US, adds Mr Friedman.

These are the things they should be talking about and this is what the European elections should be about. However, Mr Friedman thinks that all the talk and all the electioneering is going to be about Iraq. He is partly right. There is a fair chance that the American Administration will recognize overtly or covertly that France, which lost its lucrative deals with Saddam Hussein will need to be bought off with some business arrangement in Iraq. Otherwise it will not support the UN resolution and will try to derail any NATO involvement in the post-June 30 Iraq. The latter, as it happens, can be circumvented – it would not be the first time, or the last, when France will be effectively isolated in NATO. The former will require some economic sop.

The European elections, however, are not about Iraq, though some parties have placed the issue high on their policy priorities. Mostly the electoral campaigns are about the running unpopularity of almost all incumbent governments.

Mr Friedman, with the usual optimism of writers on the Wall Street Journal cannot take the constitution seriously and, apparently, cannot see its many implications, not least the economic ones. And yet, that is what at least one of the meetings is going to be about: the Summit in Brussels on Waterloo Eve and Waterloo Day. Still, his main conclusion is inescapable:

"Come July, Europe's leaders will still be haggling over failed budget-deficit targets, unfinished welfare overhauls and Western Europe's fears of lower corporate tax rates in Eastern Europe." The only thing is, much of it may well have been written into the Constitution by then.

Elsewhere in the newspaper, the editorial discussing President Reagan's achievements commented in passing that "the Reagan tax cuts saved America from following Western Europe into welfare-state decline". That is what Dominique Strauss-Kahn's vaunted "European model of society" looks like from outside. Not all that attractive, really, more a standard of measurement of what to avoid.

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