Economic Malaise Threatens To Undermine European Unity

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    Aug 12, 2008 4:23 AM GMT
    "The vastly more generous social safety nets in Europe has made it so Europeans are likely to suffer less than Americans from the global slowdown. But as the once-sizzling economies in Europe go cold, discontent with the notion of the E.U. appears to be growing. Troubled Ireland, for instance, dealt a blow to the future of the union in June by rejecting a treaty that would have, among other things, created a full-time E.U. president.


    "The deteriorating economic condition is putting new stress on Europe, which seems to be even weaker now than the U.S.," said Tom Mayer, chief economist for Deutsche Bank. "Some pessimists even talk now about the euro area breaking apart. I would not go that far, but we do know the honeymoon is over and this is the first real test of the marriage that we have seen." "

    http://www.washingtonpost.com/wp-dyn/content/article/2008/08/11/AR2008081102406.html?hpid=topnews
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    Aug 12, 2008 6:27 AM GMT
    Thanks for the article. I will read it in full tomorrow.

    It is funny that this should fall into my lap right now. I am editing a peer's paper for publication. The subject is: Need for Reform in Higher ED in EU. It's all about continued learning, and the need to make education available to all ranks of the population. To stay competitive EU has to reach everyone not just young adults within the k-12 to higher Ed range.

    Learning has left the confines of education and now has to happen continuously for everyone. That's the only way we can stay ahead of the change and remain marketable, employable, knowledgeable of the future and prepared for it financially, legally, and intellectually.

    Scary huh?

    In the past you learned one thing and it was good for a 40 year career. LOL
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    Aug 12, 2008 6:57 AM GMT
    Having lived in the EU since Euro Day in January 2002, and by virtue of my profession, I have had front row seats to the birth of the Eurozone.

    What was good for Europe's largest economies (financing German reunification - for example) was disastrous for Southern Europe (housing bubbles in Spain, Portugal, Italy, and France).

    Without writing a long treatise, suffice it to say that the mid term economic prognosis is not good. In the midterm, the Eurozone will remain the playground primarily of France and Germany.

    In the long term I expect that the real pressure won't come from inside but from renewed threat from Russia and competition from Asia and the Americas.

    China, by the way, is in a disastrous situation with repatriation of industry happening at an alarming rate, the weak-dollar policy, and high inflation. 40% of outsourcing to China from Germany (for example) has already been repatriated.

    Terry
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    Aug 12, 2008 7:10 AM GMT
    I highly recommend the following book: "The European Dream" by Jeremy Rifkin ... about how it is eclipsing the American one. It talks about a lot of things about Europe that we Americans hardly get to hear over here in our media. For example, it is interesting that many American economists dismissed the euro and basically predicted that it would fail ... now look at it now: stronger than the dollar. Anyway, of course Europe has it own set of problems ... the current economic woes affect everyone.
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    Aug 12, 2008 7:44 AM GMT
    Hmm. I don't think one country rejecting the idea of a European President shows a discontent with the notion of the EU. Either way, over consolidating the government in Europe might not be a good thing. In fact it could be argued Europe's economic strength, in part, comes from the separation of each country and its ability to develop independently.

    Some countries in the EU may be rough water, but its expected considering the EU and the Euro is relatively new. Considering how strong the Euro is, I doubt the region will be in a slump for too long. The US on the other hand ... Its gunna take some time before we are on par with the Euro, living abroad was tough... We've fallen so far so fast, I'm surprised more people aren't outraged.
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    Aug 12, 2008 7:48 AM GMT
    owl975 saidHmm. I don't think one country rejecting the idea of a European President shows a discontent with the notion of the EU. Either way, over consolidating the government in Europe might not be a good thing. In fact it could be argued Europe's economic strength, in part, comes from the separation of each country and its ability to develop independently.

    Some countries in the EU may be rough water, but its expected considering the EU and the Euro is relatively new. Considering how strong the Euro is, I doubt the region will be in a slump for too long. The US on the other hand ... Its gunna take some time before we are on par with the Euro, living abroad was tough... We've fallen so far so fast, I'm surprised more people aren't outraged.


    Well said OWL!!!!!!!! You got it in ONE!
  • thisguy023

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    Aug 12, 2008 12:22 PM GMT

    I don't think the economic situation is undermining the EU. It is the rapid growth of member countries and the enormous bureaucracy. The expansion to the East has made a lot of ‘old Europeans’ very nervous and the ridiculous rules that come out of Brussels are incredibly annoying and unfair. Deep in their hearts most Europeans know that the EU has made them wealthy and save, but at the same time the EU appears to be an uncontrollable power that keeps growing unchecked. In my opinion that is why people vote against the EU treaty.
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    Aug 13, 2008 7:00 AM GMT
    owl975 said Some countries in the EU may be rough water, but its expected considering the EU and the Euro is relatively new. Considering how strong the Euro is, I doubt the region will be in a slump for too long.


    Sorry but your statement is ill informed.

    The strength of the Euro is not representative of healthy underlying economic fundamentals (and conversely neither is the weakness of the dollar the oft-mentioned poor underlying economic fundamentals. If national debt where the measure of economic strength then Europe would be in far worse shape than America (and it is from that point of view).

    The strength of the Euro is an enormous hindrance to the European export economy and has had seriously deleterious effects on the economic fortunes of Italy, Germany, France, Spain, Portugal, Sweden, and now Great Britain.

    Most exporting companies are relatively small (especially in countries like Italy) and they are particularly hard hit by the combination of the strong Euro, the weak dollar, and non-existent capital financing.

    ECB policy has kept interest rates low and liquidity lower in a futile attempt to stem inflation. Inflation has passed 4% in Great Britain and the situation is far worse on the continent (where the figures are often fudged but people on the street will tell you that the "Euro effect" has made everything more expensive.

    Furthermore, the mortgage problems that have plagued America are very present in Europe. Exactly whom do you think was buying all of those mortgage backed securities that Wall Street was so eagerly packaging? Could it have been Europeans who saw these vehicles as a.) asset backed and therefore less risky b.) relatively cheap because of the weak dollar.

    Do we really think that a mid-level trader at Societé Generale was able to vaporize billions without anyone ever noticing? Could this be a case of the French saving face?

    In Italy operai (workers) who earn euro 1,000 a month and have a houshold income of perhaps 3,000 euros (with three-or-four people working) have taken out mortgages and second mortgages on first and second properties. Those people now find themselves with monthly payments of 2000 euros and cars, credit cards, cellphones, etc. on top. Food prices are skyrocketing, gasoline is through the roof, and so forth. That train cannot stay on the tracks.

    My housekeepers husband (a man who has worked for the same company for more than 30 years - and who is 3 years from retirement) is now being asked to sit at home because there are no orders for the companies product. Can you imagine how he must feel?

    Sorry, but unraveling this mess is going to take at least a decade. Moreover, a functional Europe will depend, eventually, on one of two possibilities. a.) Either some mechanism will have to be found to avoid an ECB policy that is controlled by Germany, France, and Great Britain b.) or/and there will have to be some kind of decoupling of bank policy until (and if) relatively parity is reached between northern and southern European economies.

    At the minute, the old addage that says "when America's economy catches a cold, the rest of the world gets the flu" has never been more germane.

    Terry