The Bear's Lair: Weasel Economics - II

By MARTIN HUTCHINSON, UPI Business and Economics Editor  |  Feb. 11, 2003 at 10:12 AM
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WASHINGTON, Feb. 11 (UPI) -- The "Axis of Weasels" of France, Germany and now Belgium, satirically attributed to Donald Rumsfeld by the Web site "Scrappleface," is an idea whose time may have come. It refocuses one's perception, and provides an explanation for the alarming non-disappearance of socialism, supposedly dead since the fall of the Berlin Wall in 1989, but in reality very much alive.

In economics as in foreign policy, the Axis has its own agenda, which it seeks to impose on the rest of us. Part I of this survey Monday discussed how France and Germany ("the Axis") came to be in such economic difficulty; this Part II looks at the means they have devised to deal with the problem.

2003 sees the Axis saddled with an inordinately large public sector, highly restrictive labor legislation, excessive social costs, and a demographic time-bomb in the impending retirement of the baby-boomers (neither country has significant private sector pension arrangements.) Naturally, therefore, the Axis reaction to changes in the world economy is very different to that of more economically self-confident countries such as Britain and the United States.

-- Globalization, an increase in world trade, is a threat, because it exposes their over-manned and inefficient industries to competition.

-- The emergence of new economic powers, such as China and India, is an enormous threat, because the new markets have little interest in French and German products and expertise. Thus they represent a threat to France and Germany's economic position, not a growth opportunity; as they grow in importance, France and Germany must shrink.

-- The entry into the EU of Eastern Europe seems likely to produce the "giant sucking sound" predicted for the U.S. by Ross Perot, as jobs leave the Axis for the much cheaper and equally skilled workforces to the East. In addition, the EU budget, subsidized by Germany and hugely benefiting France, will be turned upside down by the entry of poorer countries with large agricultural sectors.

-- The emergence of new investment opportunities, and possibly dynamic growth in world stock markets, is of no interest to the Axis; their citizens depend on the state for their pensions, and invest their savings in bonds and real estate, not equities.

In short, to the Axis, world economic growth and opening are not the positive sum game they appear to others; they are not even a zero sum game. They are instead a negative sum game, a mortal threat that must be fought at all costs.

The Axis has developed considerable skills in slowing the pace of world economic change. Its principal instrument, of course, is the European Union, which, when in agreement, the Axis has been able to dominate (with the active assistance of Italy until the advent of the Silvio Berlusconi government in 2001.)

-- The EU has proved remarkably successful in imposing Axis levels of over-regulation and over-government on other European countries, for example the Social Chapter of legislation, against which Britain abandoned its Maastricht Treaty opt-out in 1998.

-- Eastern Europeans have been allowed into the EU, but only on adopting the "acquis communautaire" of EU legislation. In practice, this has meant that countries such as Estonia, that had moved a long way towards the free market after throwing off Communism, have been forced to re-socialize themselves before being allowed into the EU.

-- To the extent that new members of the EU threaten the privileges of existing members, their membership has been phased in over a lengthy period. Whereas the regulations and costs of EU membership must be met within at most 2-3 years, the benefits to East European citizens of membership, in particular free movement of labor and free access of agricultural products to the EU market, have been deferred for up to a decade.

-- In dealings with the developing world, the EU has been highly protectionist, while at the same time spending large sums of taxpayer money in advice, debt relief and charity. Thus access to EU markets for such Third World staples as textiles and agriculture is highly restricted, while aid budgets, either directly or through safely EU-friendly bodies such as the European Bank for Reconstruction and Development, the World Bank and the International Monetary Fund, are continually expanding and much bigger than those of the U.S. The aid is often corruptly administered, and generally does little good; that's not the point. It spreads wealth among the local political elites, makes them allies in forums such as the United Nations, and prevents pressure building up for any extension of true free trade and globalization, which threaten the Axis.

-- A especially cynical EU policy has been the opening of its markets to the 41 poorest countries in the world. These countries, because of their appalling governments and infrastructure, are no threat to Axis trade, but provide 41 reliable votes for the Axis in forums such as the World Trade Organization and the UN. With EU advisors swarming over them, they can moreover be relied upon not to grow into an economic threat in the future.

-- The environment has been an area of especial Axis success. In particular the Kyoto treaty, which by taking 1990 as its baseline included all the environmental degradation of the former East Germany, would if enacted impose impossibly high costs on the U.S. economy, moderate costs on the Japanese economy, no costs on the Third World economies (which are not included) and no cost on the Axis, which with a static or declining population, low economic growth and East Germany out of business would have to carry out only those clean-ups that were in hand anyway. If the Clinton administration had been persuaded to sign Kyoto, the U.S. would have been hobbled economically for the next decade. As it is, the unsigned treaty still provides a very useful moral weapon to bash the Bush administration and the U.S. as a whole.

-- The Axis hopes that its priorities can be enshrined permanently in the EU as a whole by means of the new European Constitution, drafting of which has been led by none other than ex-President Valery Giscard d'Estaing, as I showed yesterday guilty during his 1974-81 Presidency of the most rapid government expansion France has ever seen. President Jacques Chirac of France and Chancellor Gerhard Schroeder of Germany got together to co-ordinate their priorities in January, as one would have expected. The draft constitution produced Friday, with countries having only a week to comment on it, has shocked British Prime Minister Tony Blair by its total abandonment of the much-vaunted principle of "subsidiarity" and its subjection of individual country governments to an un-elected EU bureaucracy that the Axis expects to dominate. Like most British leaders when dealing with the Axis, Blair had been naive. If the Axis can push through the constitution as drafted, or close to it, Axis dominance will be permanently established over a Europe of 450 million people, with a GDP greater than that of the United States. At least, that's the hope.

The important Axis objectives are thus to slow down as far as possible the rapid pace of change in the world economy, to keep the U.S. unpopular in the Third World, so that it is seen as a global bully, and not as a free market economy worthy of emulation, and thereby to preserve against the forces of adverse demographics and economic change both the illusion of Axis political and economic power and the reality of high Axis living standards.

The Iraq crisis in this context appears only another excellent opportunity, by keeping the U.S. pre-occupied, drained of resources and off-balance, to advance these objectives. Nobody should therefore be surprised that the Axis is taking full advantage of this gift.

(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

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