UNITED WE STAND: a strong EU for a better (economic) future
by Alberto Zaffaroni, 13th August 2011
The world’s largest professional services firm, PriceWaterhouseCoopers (Pwc) has recently published a paper, suggestively named “The world in 2050”, in which they forecast the paths that major world economies will follow in the next 40 years , in terms of GDP.
Largely expected, we’ll have to get used soon to the idea that US will no longer be on the edge of world economy, giving way to new industrial “monsters” as China and India. According to GDP data forecasts, China will overtake US approximately in 2018 and no later than 2045 it’ll be the turn of India to do the same. These historic over takings raise some first interesting questions about, for example, what changes they’ll bring in our lives and ways of looking at the world or, still, how US will interpret its new role in the world economic sphere.
But the research by Pwc goes further, showing the projections for other major economies’ performances. We can easily notice that China and India do not represent the only rollovers of the economic world as we know it. Brazil, Japan, Russia, Mexico and Indonesia will take the place of most European countries in the “top-10 GDP chart” by 2050. Brazil will overtake France and Great Britain in the next few years, following it will come the turn of Russia on Germany, then it’ll be up to Mexico on Italy and so on and so forth.
Clearly we must be prepared to this massive reversal of the “order of things” we’re now used to and somehow accept the new, marginal role that each European country, considered individually, will play on the stage of world economy.
But here’s the point. Naturally, if we consider each European country as an entity on its own, it will look like a gnome in front of giants as US, China, India or the other emerging economies. However, this is not the case if we apply the old adage “united we stand” to the European contest. In other words, if we take the GDP levels of the major European economies, as calculated by Pwc, and add them all up, the final data will lead to totally different conclusions.
Have a look at the following chart for a deeper persuasion:
As we can see, the last may not be the first this time, but surely they’ll still have something to say in the economic panorama. How to get this, then?
GDP LEVELS in 2050 (in billions of Dollars, according to Pwc’s research)
China: 59.475
India: 43.180
USA: 37.876
Main EU Countries: 20.477
Germany: 5.707
GB: 5.628
France: 5.344
Italy:3.798
Brazil: 9.762
Japan: 7.664
Russia: 7.559
The answer’s to be found in something already existing, but maybe undervalued or culpably denied and its name is European Union. “United we stand”: the main European countries, a long long time ago, have already laid the foundations for this ambitious project of union, a marvelous machine, except refusing to give it the necessary fuel for an effective existence, i.e. sovereignty.
This is the time for strong and brave decisions, for the present, and most important, for the future. The chronicle of these black days for world and, especially, European economy is giving somehow a great chance and stimulus to European countries. It’s clear that nobody, at least in Europe, can stand alone the pressure of the moment on public finances and sovereign debt. Then, I personally welcome the strong intervention of the ECB in the last days with special reference to Italy and Spain, as an involuntary thrust in the direction that European country should take, based on two main pillars:
1) “Do what we didn’t want to some decades ago”, i.e. it’s time for European national governments to bravely but gradually give away more and more of their power so to pave the way for a true, unified, effective EU’s government, in charge of making homogeneous decisions for all the members.
2) “A EU ministry for economy and finance”. It seems that having a unique monetary policy but several fiscal policies leads to costs and obstacles higher than expected. Then, the only way to get out of this “impasse” may be to definitely give the power of decisions on European policies (both monetary and fiscal) to a superior, independent organism, responsible for the good health of all EU economy.
If we want to survive in the ocean of world economy, populated by fishes much bigger than us, than we have to make ourselves bigger and stronger too.
“United we stand” be our motto, politically and, above all, economically.
Alberto Zaffaroni 13/08/2011 Sources: Il Sole 24Ore and “The world in 2050” by Pwc
Write a comment
Fabian (Sunday, 14 August 2011 10:42)
I am a supporter of the European idea...and would agree with all of your idealistic arguments. But let me be the "advocate diabolist" for a while. Contrary opinion would argue that a unique fiscal policy for the whole EU due to heterogeneous social and economical situations can have a strong negative impact for the countries not exactly following the average, in terms of growth, unemployment and so on. I would 100 percent agree with the institutionalization of the fiscal policy...the policy should be goal oriented as the ECB and independent from short term political interest. In addition I don't like the intervention of the ECB at all. Their focus should be price stability (and goal oriented political independent monetary policy..;-)) . When the ECB bought greek government bonds it lost all there reliability. But do we still have a democratic system if we had created such a institution? Finally the pressure on the Euro room as a monetary union is strong and the larger the varieties between the countries become the more difficult will it be to create a solution. But as we know, the expectation always have a real impact, so lets think positive again and agree with your idealistic construct somehow we will develop a solution...;-). Hopefully we will read this article in 15 years again and the European Union will already be a Union like the U.S. ^^
Alberto Zaffaroni (Tuesday, 16 August 2011 12:51)
I'm aware of the fact that the arguments in the article may have proved a bit too idealistic and to a lover of pragmatism, as I am as well,they sound a bit strange too. But in this case I preferred to let things go this way for two main reasons:
1)I think nowadays the idea of Europe needs a lot of enthusiasm all around itself, as too many people (Europeans!) look at it with too much skepticism and even denial. Then, in my opinion, those who are fond of Europe and of its potential role in our future must carry away the others, creating "positive thinking" (yes, here it might be useful) around this ambitious project. 2)I myself know that processes like those presented in the article needs time and patience, being implemented step by step. After all, even the world was not made in a day. But I still think is important to light the way, to give people the right direction we must follow.
About ECB intervention, you're right by saying its job is not political and should be independent above all. However, I see it in this moment as the only European institution actually strong, reliable and effective. In other words, the only European institution able to speak and act and to be heard with respect by all EU members. Then, in absence of any political institution which might play a central role in Europe's life, in my opinion, ECB is usefully giving a help, somehow, to the long process carrying to a strong, unified Europe. Even if going against its own goals and nature...
Fabian (Thursday, 18 August 2011 12:01)
Take a look at Martin Feldstein (Harvard Professor) on the eurozone situation.
http://www.facebook.com/projectsyndicate
He argues contrary that for example Greece should leave the eurozone.
What do you think about his arguments?
ZhiJuan (Thursday, 18 August 2011 21:10)
Hi! :) Here's my opinion on this issue.
With reference to the article, I agree that both the US and EU economy is losing out to BRIC (Brazil, Russia, India and China). There is also a high possibility that a recession is approaching both US and EU, and 1 of the reason could be due to monetary policy failure..
ECB seemed to tighten the fiscal policy and caused some funding issue in the banking sector, which is what the US have also done previously- to cut government spending which slows growth. Furthermore, it isn't easy for ECB to try apply a common fiscal policy to different countries within the EU as each and every country have different economic status.
Although I like the idea of a unified EU, my conclusion is that this situation might be ideal, but its difficult to achieve as it intensifies conflicts between countries with differing political and economical goals...
Alberto Zaffaroni (Friday, 19 August 2011 17:52)
First, let me say it's really interesting to see how the debate is taking hold about this topic and to read different points of view and contributions too.
I'd like to focus again on the situation pictured in the article and understandably defined as "ideal". As I myself wrote, I'm aware that a unified EU is not a short-term realization project. However, I'd like to bring to you the words by a renowned italian economic journalist, Fabrizio Galimberti, writing today on "Il Sole 24Ore", the main financial newspaper in Italy. Properly translated, he argues that somehow EU foundin fathers' intention itself was not to give immediately a unified policies' guide (because of the diversities existing among the members) but to leave "the forces of history" work, so to gradually erode the national powers and force the process of unification of Europe, not by humans' decisions but by the strength of the flow of events itself. In other words, it's like they said: we don't give EU a unified guide now, but we give it a structure so that it'll become natural in the future to have a common guide for policies. With this in mind, today's national economies' difficulties are nothing but the "forces of history" at work. Maybe unawares, the need of national governments to refer to EU or ECB to help them out with the crisis, it's naturally giving more power to supranational institutions and leading us to accept without traumas the idea of being ruled by a European government, rather than our own national ones. This is just a massive chance for Europe!
Alberto Zaffaroni (Friday, 19 August 2011 18:07)
I divided my comment not to make it too long ;) Hopefully...
Anyway, about differences among EU countries: as many looked at last Merkel-Sarkozy meeting as a failing one, I saw something completely new moving towards the direction I strongly support: they said they'll harmonize German and French industrial taxation in the next few years. What's that if not a small step towards eroding differences among countries? Of course, it all must start from main EU countries, so that they can work as examples for the others too.
Then, obviously, there's Greece, not similar to virtuous Germany at all. What to do with them then? It's difficult not to agree with Professor Feldstein's arguments (and not only because he comes form Harvard) and in the worst times for Greece I've thought too that the best, for us and for them, would be to get out of Euro, maybe just for some time.
This would be clearly a huge blow for European Union idea but we must be also realistic. However, in my opinion, this could happen if and only if all the possible efforts have already been made by the other members to keep their "brother" in, unsuccesfully. But in any case, this must be only an exception, for the moment and a lesson too: for the future and not to make all this happen again, we must start to work on a new, stronger EU RIGHT NOW!
Alberto Zaffaroni (Friday, 19 August 2011)
Sorry, I forgot to enter one necessary word : "and in the worst times for Greece I've thought too that the best, for us and for them, would be Greece getting out of Euro, maybe just for some time."
I didn't mean all EU members must give up Euro, only Greece, obviously!
Fabian (Saturday, 20 August 2011 14:40)
Mhmm your last post made me think. Prof. Hans-Werner Sinn one of German's leading economists is also very skeptical about the current situation. But lets face it, we are arguing on the basis of a very small set of public available information and the situation is very complex and influenced by a lot of interests. Still to my mind (and from my own small perspective) it is in the interests of all countries to strengthen the bound between the EURO Countries and as Alberto put it to create a independent goal oriented "Superinstitution" for the Eurozone. Of course "sustainable" goals are not easy to achieve and require high investments in the short run...;-)
Fabian (Tuesday, 08 November 2011 18:04)
A good analysis related to our discussion can be found on the INET page, written by Martin Goodhardt and comment by Edwin M. Truman
http://ineteconomics.org/blog/inet/edwin-m-truman-responds-charles-goodharts-europe-after-crisis
@Alberto what is your opinion about it?
Fabian (Sunday, 15 April 2012 20:23)
Serious answer from George Soros....on the Issue....!!!
Please watch it and come back to me...
http://www.youtube.com/watch?v=T0_0A1K7dlE&feature=relmfu
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