Erosion of European economy?

The New Age, Dhaka.
19/11/2011 22:50:00
http://newagebd.com/newspaper1/editorial/40572.html

The economic crisis of Europe also needs to be understood in terms of the history of surplus economy created during the colonial era and the character and nature of economic growth and the political development of the region in the post-second world war era. Writes John Samuel



Greece is more than a country. It is a civilization that deeply influenced the culture, society and political process of the western and southern Europe. If the number of people marching on the streets and the increasing discontent of citizens in many countries of Europe is an indication, many of the European countries are getting in to a precarious phase of volatile economy and state. Though the economy of Greece does not make a big chunk of the economy of European Unions, the deeper economic and consequent political crisis of Greece is indicative of the shape of possible trajectories of the economy and politics of many countries in the European Union. In wake of the economic crisis of 2008, Greek economy suffered as the main contributors to the Greek economy, shipping and tourism, suffered, resulting in unemployment and decreased tax revenue of the government. The trouble is that more than five countries, including Ireland, Italy, Spain, Portugal, are dealing with a possible debt trap, and consequent economic recession. In spite of relatively stable economies of Germany, France or Netherlands, there is a likelihood of a more vulnerable Euro and possible economic recessions. This will have wider political and policy implications, in terms of new contestation at the national level and debates over the mutual responsibilities of countries within the European Union. The present financial crisis in Europe will also affect the quantity and quality of the international development aid of many countries, in the context of the new austerity measures.

In a way, the ongoing economic crisis in Europe is the phase two of the financial crisis that began to be evident with the crash of Lehman brothers in 2008. In a largely credit and consumerist driven advanced capitalist system, the greed of speculators in the financial capital market through new derivatives and bonds eventually resulted in to the fall of the speculative finance capitalism, driven by paper money and ‘fictitious’ capital movement on paper. European Banks exposed to the US market also got affected by the crisis. Within Europe, a low rate of interest and easy credit led to the increasing borrowing and consumption, fuelling more demand, which showed relative resilience in the wake of the financial crisis in the US in 2009. However, easy credit also increased the credit at the household and financial sector. The banking sector in Iceland collapsed in the first phase of the financial crisis in 2008. Though many countries such as Spain and Ireland had surplus budgets, the bailing out of the private banks and increasing public expenditure eventually increased the deficits. As the economic crisis began to unfold in many countries, many factories were closed, leading to unemployment and financial hardship at the household level, fuelling further the state expenditure for unemployment benefits and other welfare measures. The increasing instances of unemployment led to the default of the credit card repayment as well as decreasing of the revenue of the state from the tax. So the governments in many countries spent more when the tax receipts decreased significantly. This had a rather catastrophic effect particularly in countries with speculative real estate and property boom, driven by credit. This made the surging of interest rate and the credit rating of many individuals, firms and governments fell down precariously. As the cost of getting new credit increased, many countries including Greece, Ireland, Italy, Spain and Portugal got in to a debt trap of varying degrees.

The ongoing debt crisis in significant number of countries in the European Union will have possibly long term implications for the economy and politics of many countries and the region as a whole. While it is important to understand the present economic crisis in the context of the larger crisis of a credit driven speculative finance capitalism, it is also important to situate the present economic crisis in the larger history of economy, society and culture of Western Europe. It is possible to argue that the cumulative economic, social and cultural factors in the last twenty years led to saturation of market, labour force, resulting in the ongoing economic crisis. The relatively low birth rate, in the context of high individualism and dysfunctional families also resulted in the significant decrease in the younger work force that could fuel innovation, push forward new technology, increase the efficiency of production. The cumulative socio-economic factors also led to the erosion of ‘comparative advantage’ of Europe, particularly in the area of manufacturing, in the world. And in the last ten years, those born out of the baby boom in the post second world war phase got retired, with increasing cost for pension and social welfare. So Europe got in to a peculiar predicament of aging population, less availability of highly skilled work force, more cost of social welfare and less comparative advantage in terms of cost of producing goods and services in a highly competitive global market.

Ageing population with better life expectancy increased cost of social welfare and pension. Less young and inspired work force in many countries of Europe pushed comparative advantage of manufacturing sector and technology sector in favour of those countries with availability of cheaper and higher skilled work force, with more technological innovation. Less availability of high skilled labour can also lead to competition in the labour market, pushing the cost of labour high; pushing the cost of production high, and pushing the cost of living high. All these decreased the global comparative advantage in terms of quality, and price of services and goods, in a highly competitive global market. The importing of the cheap migrant labour created new political and social tension due to the fact most of the migrant labours in Europe happened to be Muslims. In the post 9/11 context of increasing socio-cultural paranoia , the trust between the ‘local’ population and migrant communities eroded and got compromised, resulting in new forms of violence in many countries, including France, UK, Germany, Sweden, Denmark and even in a rather peaceful Norway. The increasing oil price also affected European economy more than US economy. The decrease in younger workforce, the decrees in the average number of working hours and better social security also created an economic complacence in many countries in Europe. The economic crisis of Europe also needs to be understood in terms of the history of surplus economy created during the colonial era and the character and nature of economic growth and the political development of the region in the post-second world war era.


(These are the personal views of the author and do not reflect the views or positions of any of the organisations with which he is associated)