Macroscope
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Europe has to break free of German policy domination

The continent has reached a defining moment in its new age of political, economic and monetary union and is crying out for radical change

PUBLISHED : Monday, 12 March, 2018, 10:18am
UPDATED : Monday, 12 March, 2018, 10:50pm

European Union (EU) leaders may pay lip service to closer integration and better welfare for its 508 million citizens – but it is all a sham.

Policies remain biased in favour of the prosperous northern economies while the less well-off nations live in their shadow on meagre offerings from Brussels and Strasbourg. It is a situation which is unlikely to last for long.

Europe’s elite nations may be enjoying the best of the post-crisis recovery, but its distressed and poorer states still remain badly disadvantaged.

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Slower growth, weaker productivity, stubbornly high unemployment and deep-rooted structural problems are condemning Europe’s weaker economies to lag further behind, unless they get a better deal on investment and resources heading their way. Europe needs a level playing field for the future.

The trouble is Europe is dictated too much on German terms.

Euro zone monetary policy is being reined in to suit German whims. Germany is demanding even tougher European budget consolidation to forge closer economic ties.

Yet it still stonewalls the full fiscal union which might remedy European inequality at a stroke. Germany wants its cake and to eat it too.

It may be fine while the European Central Bank practices its monetary magic and maintains the illusion of synchronised recovery in the euro zone.

But it will soon be back to square one with weaker nations looking askance at Germany’s relative fortunes when the ECB’s cheap money flows dry up later this year. Tensions will come back to the boil as countries fall behind again in the relative growth stakes.

The clock is ticking and Europe’s leaders must move fast to head off the existential crisis which is looming down the road

Germany is enjoying unparalleled economic success. Solid GDP growth, low unemployment, a burgeoning budget balance, a rampant trade surplus and Germany’s all-conquering industrial might are rubbing salt into the wounds of its weaker partners.

Germany’s economic dominance is causing deep political ructions and needs to change tack to share out more of its spoils.

Governments can ill-afford to ignore the seismic changes occurring throughout Europe right now. The recent election results in Italy are a reminder to Europe’s ruling parties that political discontent is riding high.

Political populism is still bubbling up, especially among Europe’s young, unemployed and disadvantaged. Public anger is being heaped on the old order and change is long overdue.

Europe must raise its game and improve on its dismal GDP growth track record over the last 20 years of only 1 per cent per annum. The best plan of attack would be to reinforce self-sustaining growth for all European countries.

Disposable incomes, spending power and better wealth distribution must be improved and brought closer into line with Germany and the more prosperous EU nations.

It is pointless Germany selfishly dominating its captive market in Europe, exporting top-end, luxury BMWs, Mercedes and Porches into cash-strapped, ailing European countries which only end up with yawning trade gaps and increasing piles of unpayable debt.

In the absence of better trade reciprocity, Europe needs massive intervention to stop the imbalances going beyond repair.

In the absence of better trade reciprocity, Europe needs massive intervention to stop the imbalances going beyond repair

The glaring failure of the EU is the widening divide between rich and poor nations. Where this is most acute are the huge employment differences facing many young Europeans.

For the under-25s, the jobless rate is over 40 per cent in Greece, yet as low as 7 per cent in Germany. This is not sustainable in the long term. It is a breeding ground for ill-feeling and deepening political rifts.

Europe’s leaders need to get their thinking caps on quick. By all accounts, German Chancellor Angela Merkel and French President Emmanuel Macron are postponing plans to announce major new initiatives at the European leaders’ summit later this month.

But the longer Brussels delays introducing much needed structural reforms, it simply ends up kicking the can down the road.

It is not closer political integration which is needed but new mechanisms to help mobilise prosperity and productive capacity towards Europe’s ailing and failing economies. Closer economic integration is imperative with fuller fiscal union and a single European budget to focus cross-border tax and spending flows where they are needed most.

Germany might not like it, but it must happen sooner rather than later.

The clock is ticking and Europe’s leaders must move fast to head off the existential crisis which is looming down the road.

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