Why Europe Failed

Oliver Hartwich at the NZ Initiative has had an essay published on Why Europe Failed. The forward is by former Australian PM John Howard who notes:

Oliver Hartwich has written a compelling essay, Why Europe Failed. He lucidly identifies the essentially undemocratic character of much of the European project. Political elites, unaccountable to national electorates, impose decisions on tens of millions of people without any real fear of rebuke. Hartwich provides a sobering analysis of an ageing Europe, overburdened by the size of its welfare state.

Some quotes from the essay:

Contrast this with the only one statistic in which Europe leads the world by a mile: The EU’s 28 member states account for 54% of global spending on social welfare.

But that is almost a by the way. The key thing:

Europe’s problems are more fundamental. Its elitist structure of governance has locked its political institutions into paralysis. Its economic model of a mixed market economy is unable to keep up pace with more dynamic world regions. Its demographic changes will test the limits of its expanding welfare state. And all of this is happening against a background of increased security concerns on Europe’s borders with Africa, the Arab world, and Russia. Europe is being challenged on many fronts at once, and even this is an understatement. 

He looks at the European Parliament:

The first problem is the most basic one: Unlike national parliaments, the European Parliament does not have the right to initiate lawmaking procedures. This is not a triviality. Parliaments are often called legislatures because that is what they are there for: to legislate. The European Parliament can neither make laws on its own (it needs the European Commission, i.e. the executive branch of the EU, to do that), nor easily remove the executive (it needs a two-thirds majority). In effect, the European Parliament hardly deserves its name. It is a toothless parliament by the standards of most democratic nations. 

If you abolished it, would anyone notice?

Europe’s political and economic problems will soon be exacerbated by its ageing society. In a number of European countries, birth rates have been very low for several decades. The replacement fertility rate, that is, the fertility rate at which populations would remain constant over time, is 2.1. That means if women have, on average, 2.1 children over their lifetime, then every generation would be replaced by a new generation of the same size. The current average fertility rate for the EU, however, stands at just 1.58.  This means the next generation will be about a quarter smaller than the current generation. If the trend continues, this new generation will be succeeded by another generation that is another 25% smaller. 

Breeding yourself out of existence.

The consequences of these demographic changes will be severe. It will be difficult for European nations to service their debt, let alone repay it, with both shrinking and ageing populations. There is only so much that increased productivity can do to compensate for a collapsing workforce. 

In other words, more countries may go the way of Greece – welfare commitments that their economy simply can’t provide.

Hartwich’s conclusion:

The standout reasons for Europe’s decline are its elitist political system and its inflated welfare state – and the interrelations between these two. Europe no longer rules the world. Nor can it hope to regain the dominant position it once enjoyed. Europe’s decline is entirely self-inflicted. It is a continent that first destroyed itself in two world wars. It then weakened itself by inflating the activities of the state while creating a bureaucratic, isolated, and elitist superstructure in the form of the EU. It also wrecked its monetary system by introducing a common currency that was never going to work and caused more problems than it ever solved.

In many ways, Europe is a case study in how not to conduct one’s economic and political affairs, which makes it all the more worthwhile to pay attention to European affairs so we do not repeat their mistakes here.

But don’t hold your breath. Short-term political gains through welfare spending is too tempting for politicians anywhere and too beguiling for voters.

Greece is only the first European country to effectively go bankrupt. It is unlikely to be the last.