I’ve just spent a week in Europe and it got me thinking of the similar, but different, economic troubles facing the major world economies. Europeans seem concerned but not frantic (no, I did not speak to all Europeans, so I am just sharing my unscientific observations). They seemed surprised at my statements that Europe’s problems seem more capable of solution than do those of the US. I could be wrong about that, but the American problems appear, to me, to be beyond fixing. We cannot continue to live beyond our means and so our standard of living must fall. But one political party is unwilling to tell people that, and the other doesn’t seem to care (as long as their own income continues to grow).
Europe’s problems are difficult, but the solutions exist and it makes sense for them to make the hard choices – the richer members of the EU will have to bail out the poorer members in exchange for the latter giving up some autonomy and subjecting themselves to financial oversight. This means a closer political union in Europe if the Euro is to be saved.
My European friends say this won’t happen – there is too much history and too many national identifies for a “United States of Europe.” The scenarios for the breakup of the Euro are many and they are mostly ugly. It won’t happen with Greece because the German banks have too much invested there. But Spain? Portugal?
This got me thinking of the third major economic power – China. Their prospects are better, with economic growth, high savings rates, and plenty of room for domestic growth. But politics stands in their way as well. Their financial sector will remain isolated from the rest of the world as long as the Communist Party retains its steadfast control. But they need a modern financial sector if they are to have the domestic economic growth necessary to ease the imbalances between their economy and ours (we are indirectly living beyond our means due to their savings). And, China is facing a demographic time bomb which adds to the political uncertainty.
So, I see three continents all with deep economic challenges and political obstacles to finding solutions. Also, this is not a competition between the three – our fates are intertwined, so if any falter, we all will. What are the chances of all three overcoming their political problems and facing some difficult economic choices?
By: Dale Lehman