Sunday, June 24, 2018

The EU Has Few Good Options As It Enters Rough Patch

Mrekel Is Under Huge Pressure Just To Survive
Both politically and economically the EU has few good options or pathways forward. It has entered a rough patch which in many ways is the result of years of inaction. Its banks are weak and concerns over the toll millions of newly arrived refugees will take on society are reaching a breaking point. Many of the issues that Donald Trump used to propel himself into the Presidency are hammering away at the foundation of the Euro-zone. We should remember high youth unemployment and those coming into the area with no desire to assimilate and adjust to existing European social norms are fueling an already tense situation. The debate as to whether to welcome or refuse immigrates and refugees will continue for a long time but it is difficult to deny those allowed to enter the EU are drawing on the resources of EU countries.

This has created what Bloomberg describes as "an escalating crisis that threatens to unravel the bloc’s passport-free travel area and dissolve Germany’s governing coalition." Europe, often referred to as the old world, has reinvented itself many times. This term is used in the context of, and contrast with, the New World (Americas). While the Old World also includes Africa and Asia, collectively, during most of the last few centuries Western Europe was calling the shots as it developed and colonized the world. The major overhaul of Europe following World War II may have rebuilt industries and helped clean house but as everywhere else in the world, it left an army of bureaucratic clowns and politicians at the top of the power pyramid and it didn't take long for them to muck up the works.

Exports And Imports From China 2008 And 2017
Many times throughout history we have seen the only thing that brings about real change is a crisis so large that it shakes institutions to their core and that may be what is about to occur. One issue the Eurozone has still yet to face in any real way is whether free trade really works. The Eurozone like many areas has not come to terms with the fact they are running a massive trade deficit with China. So far they have sidestepped the heavy onslaught of massive amounts of government-subsidized goods flowing in from Asia. While the EU has sported a huge trade deficit with Asia, America has taken the brunt of the pain over the last few decades by throwing its doors wide open. I want to suggest that China has continued to become more competitive than Europe in manufacturing and if trade policies remain unchanged the deficit is about to explode. One thing is clear, and that is both the EU and America consumers have benefited and seen inflation muted by Chinese imports but it also means fewer jobs at home.

Emotions Are Running High In Germany
Another problem is based on the narrative developed economies need and always benefit from the growth created by simply adding more people into the mix. The Pew Research Center, a nonprofit think tank in Washington, D.C., has concluded that immigrants are needed to continue to drive growth in the workforce, however, I content this is predicated on the flawed assumption that all growth is good. May I suggest quality is often more important than quantity when it comes to propelling a country forward and that the burden of feeding, educating, clothing, and housing those who add little to production can far outweigh the illusion of growth surrounding their arrival. When a machine can rapidly do the work of a hundred men the true value of human labor is greatly reduced. To make matters worse if those flowing into an area are resistant to adopting the mores of society and assimilating into the culture problems can develop, it is only by working in lock-step with the general population to be productive can this be avoided.

An article By Kari Paul recently published on MarketWatch claimed that economists say 30 years of data show asylum seekers are not a burden on European countries. They may, in fact, be a benefit says the  French government research organization the Centre National de la Recherche Scientifique (CNRS), Clermont-Auvergne University and Paris-Nanterre University. Researchers examined the arrival of asylum seekers in European Union countries between 1985 and 2015. This followed the Yugoslav Wars between 1991 and 1999 where they linked an increase in immigrants who become permanent residents with a series of positive effects such as an increase in GDP, a decrease in the unemployment rate, and increased tax revenues.

Again, it could be argued much of the so-called positive effect was a "sign of the times" rather than a reflection of merely adding bodies to the population and that they had more skills and better educations than many of the recent arrivals. Part of the problem currently faced is that the Euro-zone and the European Central Bank have gone out of their way to sidestep correcting the structural problems that have grown over the years and the current economy is rather weak. The time the area bought since the 2008 economic crisis by low-interest rates and easy money dubbed QE has been squandered. Today with evidence of slowing growth and few good options it is possible the union itself may be in danger of dissolving especially if the euro falls into problems creating a scenario of bank contagion and failure.

Footnote; The chart and other data can be located at the site below,

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