Thursday, July 14, 2011

Is Europe the Future?

Kalypso Nikolaidis - EU
Photo by openDemocracy
In the article Did the American Dream Emigrate to Europe?, Jane White, the author of the book America, Welcome to the Poorhouse, makes an interesting case that it's Europe, not the US, which is enjoying "American-style prosperity." American workers are taking lower paying jobs, manufacturing positions are moving to China and India and Europe is now the world's largest economic bloc and she claims that Germany now outperforms the US on exports (Wolfram Alpha claims that the US is slightly ahead, despite Germany having less than a third of the US population). And some European countries are beginning to offer salaries comparable to the US, and, of course, education and medical care are more wid

There is one thing I think she seriously underestimates. The European Union is not a United States of Europe. As I wrote:
[The EU's] lack of a central government means that separate states maintain separate economies with only a common currency and market to bolster them. This means that individual countries have the power to threaten the stability of the euro; individual US states do not. I'm unsure of how, or if, the EU can overcome this problem. Currently, the euro is holding together, but in the long term, several countries are threatening it due to mismanagement of their economies.
The US has long had its economy propped by the petrodollar as most petroleum trading since the early 1970s and earlier (but read about Bretton Woods to better understand the background here) was done in dollars and every country in the world thus wanted to preserve the stability of the US currency. There are now contenders to the petrodollar, but it's probably not the Euro. With Europe unable to control it's overall economy, investors aren't necessarily going to support switching to the Euro. However, if the US can't escape the Tea Party's murder-suicide pact, the world economy is going to suffer, the dollar will collapse further and oil buyers and sellers are going to start looking for alternatives.

The EU is a pile of treaties in lieue of a country and not quite ready to be the "land of opportunity". Personally I prefer it to the US, but there are still viable reasons to choose the US, too. So far, neither the US or the EU are looking particularly ship shape right now.

If the world should learn anything about this by now, it's that we shouldn't tie financial systems to a single point of failure (the dollar or euro), but I can't see the world changing their habits here any time soon.