Walker's World: Europe in disarray again

By MARTIN WALKER, UPI Editor Emeritus  |  March 25, 2009 at 12:01 PM
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FRANKFURT, Germany, March 25 (UPI) -- Normally the defeat of a Czech government on a vote of confidence would not cause any great stir around the world. Little will change in the Czech Republic since the government of Prime Minister Mirek Topolanek is likely to remain in office as a caretaker at least until the Czech presidency of the European Union comes to an end on June 30.

But the government's defeat now makes it unlikely that the Czech Senate will ratify the EU's Lisbon Treaty, which is supposed to streamline its ponderous decision-making. Hitherto, the biggest threats to Lisbon have been the German Constitutional Court, which may rule that it erodes fundamental German rights, and Ireland's "no" vote in a referendum.

The Czechs now pose a serious third hurdle to the treaty, which is intended to give the EU a permanent and powerful president and a permanent foreign minister. Without such a president (and Britain's Tony Blair is probably the front-runner) the EU is stuck with its rotating presidency, in which the affairs of the world's largest economy are run for a six-month period by successive premiers of the 27 member states. This is cumbersome and inefficient, and it helps solidify the EU's reputation as an economic giant and political dwarf.

Europe's deepening economic crisis makes the problem of ratifying the Lisbon Treaty more troubling because Europe needs the kind of stable and credible political leadership that its current institutions cannot provide. Only a strong president could forge a consensus, whether on stimulus spending between the hesitant Germans and the assertive Britons or on supporting the battered Eastern European member states.

And by weakening the government that holds the current presidency, the Czech vote means that there will be no political coherence or leadership coming from Europe. Next week's G20 summit will see Europe once again represented by the squabbling cacophony of Britons, French, Italians and Germans, all of them pursuing different policies in the economic storm.

And storm it most certainly is. After the World Trade Organization forecast a 9 percent drop in world trade this year, Germany's Commerzbank this week said it expected the German economy to shrink by 7 percent this year, with exports down more than 20 percent. Germany's purchasing managers' index is at a depression-level 32.4 percent. (Anything above 50 is growth.) France's index is slightly higher, at 36.3 percent, but that still means contraction, with Commerzbank suggesting a decline of 3.5 percent in gross domestic product. Britain expects a 4 percent drop.

The policy responses are glaringly different. The British central bank, like its American counterpart, believes that the immediate problem is keeping the economy on life support by pumping in money and worrying about inflation later. The European Central Bank by contrast sees inflation as the priority. Moreover, the French and British are suffering like the United States from the collapse of the housing bubble; the Germans had no such bubble.

Olivier Blanchard, the Frenchman who is chief economist of the International Monetary Fund, is not impressed by his country's policies. In an interview with French business daily Les Echos this week, he warns that the French stimulus package is worth a lot less than it appears and that the Europeans have yet to tackle the staggering fall in demand. If they do not stimulate now, he goes on, the Europeans will have to stimulate even more in the following two years or they will have even more than inflation to worry about.

Britain's Prime Minister Gordon Brown, in a strikingly pro-European speech to the EU Parliament on Tuesday, called on the EU to rise to the challenge of the crisis. With its history of international cooperation and consensus-seeking and its strong democratic values he said that Europe is "uniquely placed" to help chart the way out of the "international hurricane that is sweeping the world."

"I propose that we in Europe take a central role in helping to craft a new principled economy for our times," Brown said before heading off on a world tour to see other leaders of G20 countries before next week's summit. Above all, he stressed, Europe and the G20 had to stand firm against the protectionist temptation.

"I know that the temptation for some is to meet this new insecurity with retreat, to try to feel safe by attempting to pull up the drawbridge or turn the clock back," Brown said. "I tell you if there's anything we know from history, it is that protectionism is the politics of defeatism, retreat and fear and in the end protects no one at all."

Brown also called on the Europeans to forge a policy consensus, not only among themselves but with the new U.S. presidency.

"Never in recent years have we had an American leadership so keen at all levels to cooperate with Europe on financial stability, climate change, security and development, and seldom has such cooperation been so obviously of benefit to us and to all the world," Brown said.

But the implication of the Czech vote and of the German government's short-term obsession with the politics of the elections now less than six months away is that building a consensus among the Europeans will be tougher than ever. And without a European consensus, a coordinated policy approach with the United States and with the G20 as a whole will be very difficult indeed.

Like so many modern equivalents of the Emperor Nero, Europe's leaders are fiddling while Rome burns down around them.

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