Europe's drab new leaders

By MARTIN WALKER, UPI Editor Emeritus   |   Nov. 20, 2009 at 9:05 AM   |   0 comments

FRANKFURT, Germany, Nov. 20 (UPI) -- Nobody could accuse the 27-nation European Union of arousing inflated expectations with their new leadership team of Herman Von Rompuy and Catherine Ashton. The traffic will not stop in Beijing when they arrive and President Barack Obama may well ask "Who?" when they come to call.

The first is a haiku-writing Belgian prime minister who likes to blog and the second is a former full-time official of Britain's Campaign for Nuclear Disarmament who has not made any mistakes in her year as EU trade commissioner. She has no real accomplishments either, but she is female, center-left and reliably safe and unexciting, which is what the real leaders of Europe want at this stage.

France's Nicolas Sarkozy and Germany's Angela Merkel do not want the EU's new leadership team stealing their thunder or their headlines. That is why Tony Blair did not get the job. Paris and Berlin (and London) preferred the little gray mouse from Belgium and the Labor Party apparatchik from Hertfordshire who has never been elected to anything. (She is known in London for never having embraced any politically incorrect idea, except perhaps for accepting a seat in Britain's ridiculous House of Lords.)

Rompuy's appointment as Europe's first full-time president and Ashton's as its first real foreign minister mark a new low in Europe's determined pursuit of irrelevance. It was for them that Europe's voters were marched into referendums and told to vote repeatedly until they eventually gave the answer Brussels wanted. The Lisbon Treaty, which took a decade to pass and which was supposed to give the EU a new dynamism, has instead produced a couple of competent and non-charismatic committee chairmen.

The irony is that their appointment comes as one of Europe's top banks warns that the global economy looks like heading for another crash, with a collapse of the U.S. dollar, another plunge in share and property prices, and a Japan-style "lost decade" of low growth and massive unemployment.

"Nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report produced by Societe Generale, France's second-largest bank.

"High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.

It saw the debt levels of all Group of Seven governments soon exceeding 100 percent of gross domestic product, with Japan's heading for 300 percent. The overall debts of the world's leading developed economies were now higher than they were in the aftermath of World War II, with the health and pension demands of aging populations adding to future debt pressures.

The Soc-Gen report saw the massive rise in government debt triggering a new crisis with the gold price soaring and the oil price tumbling back to $50 a barrel because of low demand. The bank advised its clients how to survive "an extreme worst-case scenario" by selling the dollar, buying government bonds and defensive companies like telecoms and utilities.

Government debt was not the only problem, Soc-Gen warned. Private household debt was also becoming unsustainable. Even if the savings rate in the United States were to recover and hold steady at 7 percent of GDP, and all those savings devoted solely to paying down debt, it would still require a decade for American families to get their debt down to the manageable levels last seen when Ronald Reagan was in the White House.

Soc-Gen is not alone in its gloom. President Barack Obama warned as he left China that rising debt levels could plunge the world back into a second recession, even as it has barely begun to clamber out from the last one. The U.S. national debt is set to top $12 trillion this year, more than that the GDP of China and Japan combined.

"I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," Obama told Fox News in an interview.

Bill Gross, the head of PIMCO, the world's largest bond fund, warned insurance executives in Berlin last week that a new crash could come in 2011, triggered by the failure to renew $1.5 trillion in private equity and hedge fund debt. He also warns that China is heading into a dangerous bubble and that the world's stock markets are getting over-valued again.

In this gloomy context, Europe has decided that the last thing it needs is dynamic leadership from the EU headquarters in Brussels. Rompuy and Ashton fit the bill, as low-key and behind-the-scenes bureaucratic types who will produce no dramas and no leadership and present no threat to the prerogatives of the German chancellor, the French president and the British prime minister.

The only consolation is that with expectations from the new EU team set so low, they do not have to do much to do well. Any surprises will be for the better.

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