WASHINGTON, May 17 (UPI) -- The problem of Europe is not Europe itself, but the European myth: This is the story beloved of promoters of the process of "ever-closer integration" of the European Union. It is the folly of believing that lumping together a number of high-tax, high-regulation, high-unemployment economies will somehow make the whole more competitive than the sum of its parts, without addressing their root problems of structure and demographics.
It is true that lowering barriers to economic activity among the various member-nations of the European Union reduced certain transaction costs, and permitted new economies of scale to emerge. These benefits, however, have not been sufficient to offset the real problems facing Europe.
During the late 1990s, it was popular among Europeanist circles to maintain that the bugs in their economic programs were in fact features. This held that "Rhenish capitalism" (to link together thematically the disparate economies of France, Germany, an the Benelux countries) was actually superior to the "Anglo-Saxon model" because of the stability that government-directed funding and immobile labor arrangements imparted it.
Now, however, it is apparent that this "stability" was in fact stagnation, making it less likely that bad companies and bad managers would ever have any incentive to disclose or fix their problems.
In reality, Continental Europe has been heading for a collision for the past decade, a collision caused by their rapidly approaching demographic-economic crisis and their inability to take the appropriate corrective measures in time. Simply put, the massive cross-subsidization practices of the continental European states, which transfer substantial percentages of national wealth between regions, classes, and generations, were sustainable in past times when these nations' populations and economies were steadily expanding. Large families meant that each worker entering the workforce had to pay only a small fraction of his paycheck to support the retirees, most of who died within a few years of retiring.
After postwar baby boom (much less pronounced than the American one) birthrates began to decline. This was offset for a while by the wealth effects of the expanding, rebuilding economies, spurred by the postwar lowering of tariffs and easy access to the previously closed American market. The Common Market and increased internal free trade helped as well. However, these trends began to run out of steam in the Eighties and Nineties. Japanese and East Asian companies began to out-compete Europeans for the American markets, while American companies themselves became more competitive.
Meanwhile, the European social market economy burdened their competitiveness with high labor costs and inflexible practices, protecting un-needed positions while marking it difficult to raise capital to create new jobs in newly emerging sectors. At the same time, the European social-democratic political systems made it easy for politicians to add new and more lavish social benefits, without having any idea where the funds would eventually come to pay for them. Furthermore, unlike the Anglosphere economies, most Continental European economies paid for retirement almost entirely from government funds raised by current taxation. Only the Netherlands has significant private pension funds.
For the past decade or so, those politicians bothering to address these issues at all have assumed that economies of scale of European integration, improved productivity from technology, or magic pixie dust would eventually square the circle and prevent them from having to tell the electorate that not all (or even most) of the implicit promises of their social provisions. The other assumption has been that Anglo-American "savage capitalism" would eventually collapse, and that the new, dynamic unified Europe would begin to draw more and more of the world's footloose investment capital, which for the past two decades has been flowing disproportionately to the Anglosphere.
In short, Europe has been in the position of a deer standing on a highway at night, oblivious of the oncoming eighteen-wheeler diesel. Now some Europeans have begun to at least look up and notice the headlights. The French "semi-official" think-tank Ifri (Institute Francaise des Relations Internationales), which has in the past been more of the pixie-dust school of forecasting, has issued a startlingly frank and honest report entitled "World Trade in the 21st Century".
In it, they construct a number of scenarios. The reference scenario accepts the demographic and social trends discussed above, and accepts that America will continue to attract the bulk of free-floating worldwide capital. Its results paint a graphic picture: by 2050, the EU, despite its expansion to 30 members, will see its share of the world's economy decline from the current 22 percent to only 12.
Its population declines from 331 million to 243, North America advances from 269 million to 355 million. Their big elephant is "Greater China" (including Taiwan) which sees its growth rate level out at 2.6 percent, ahead of North America's 2.3 percent, and far outpacing Europe's 1.1 percent.
Their solutions, however, are disingenuous. One involves a massive increase in immigration, at least 30 million persons by 2020. Another is the creation of a "co-prosperity space" between Europe, Russia, and the Arab Mediterranean region. Continental European social ideology has already resulted in the presence of a large population of hostile, non-assimilated immigrants.
These populations already hold out the threat of polarizing the coming political conflict between young taxpayers and retired benefits-payers along racial, religious, and ethnic lines. As things stands now, young Ahmed is looking at having to pay a huge chunk of his paycheck for old Pierre's lavish retirement benefits, the like of which he will never see himself. Unless the pension systems are seriously reformed, and unless immigrants are given better incentives to feel a sense of solidarity with the populations they are joining, further immigration, never mind expanded immigration, is likely to be a recipe for social disaster.
As for a "co-prosperity space" with Russia and the Arab world bringing a competitive edge against America and China, that also has problems in a dynamic environment. To begin with, Russia's most promising long-term partner is America. It is America, not Europe, that can best provide both the economic cooperation Russia needs, and the military pre-eminence to addresses Russia's biggest long-term problem over the next two decades, which is protecting its Siberian assets against an expanding and potentially destabilized China.
In the short term, the Ifri report accurately identifies a number of problems, but a different set of conclusions is called for. The first and most obvious one is that there is no need for Britain and Ireland to share in the fate of the Continent, and every reason to insulate them from the coming EuroCrash. Their demographic and economic profiles resemble North America's more than Continental Europe's. Creating buffers between their sound institutions and Continental Europe's failing ones is the first step in disaster control. The second step is rapid and thorough economic integration between Britain and Ireland and North America. This will create an anchor that the Continental European economy, once reformed, can use as an aid to rebuilding.
The ultimate conclusion, however, is that the Ifri report seems to overlook the most obvious solution for Europe. Rather than constantly defining themselves in rivalry to America, the long-term solution, once some economic reforms have been carried out, is a much closer integration of Europe and America. A healthy, dynamic Anglosphere economy could serve to reinvigorate the Eurosphere, just as American market access aided in the rebuilding of postwar Europe. A Trans-Atlantic Free Trade Area linking Europe with the Anglosphere could offset many of the longer-term issues raised in the Ifri report, again assuming the bullet is bit on structural reform. Who knows -- they might even start having a few more babies again.