Thursday, July 05, 2007

Is Europe Turning Around?

I am currently reading Walter Laqueur’s The Last Days of Europe. It tells a story not familiar to many, but certainly to me and my students – of European decline, perhaps terminal. Western Europe has been economically and demographically on the skids for some time. Declining populations of young people, overextended welfare states, and substantial restrictions on job creation have combined to create a climate of pessimism and promoted emigration by the most ambitious. It joins other work such as America Alone, Menace in Europe, While Europe Slept and The Force of Reason in predicting that Europe as we know it is finished, sinking under a flood of economic depression and unassimilated immigrants.
But recent data suggest that in the central spine of the EU – Germany, France and Italy – things may be looking up.

With regard to unemployment, OECD standardized unemployment rates show good news:

Country200420052006May 2007
Euro area8.

And this is not a coincidence. German chancellor Angela Merkel has attacked one of the three contributors to Eurosclerosis, generous unemployment benefits that cause people to turn down jobs, although she has largely left untouched the high taxes and labor-market rigidities (the latter of which have been attacked in Holland and elsewhere) that also contribute. And even the merest promise of economic reform in France under M. Sarkozy seems to have coincided with an economic pickup there.

Demographically too, The Economist has a brief piece on rising fertility in Northern Europe, although Italy and Spain continue to struggle. Given the desperate need for young people to keep the welfare-state pyramid going, this is an encouraging development, although levels are still below replacement everywhere across the Atlantic.

So is the generation-long collapse of confidence, growth and reproduction over? I am not convinced. First, many European countries have lowered unemployment by moving large numbers of productive, working-age people onto disability. The OECD does try as best it can to make its unemployment statistics comparable across countries, but I wonder. Second, young, ambitious Europeans still feel like they have no future, if emigration in Germany and France are any guide. When people like this stay, we will know the nightmare is over. And while some attribute rising fertility in Europe to tax credits for children, which in the past have had the merely temporary effect of shifting births from the future (on the assumption the credits will be repealed), the demographic breakdown, particularly in France, is unavailable. If, for example, the rising fertility will mostly be angry young men in the Paris suburbs in fifteen years, there is nothing really to applaud. But on balance taking the first of what will have to be many steps on the road to recovery are better than standing in stagnation. Perhaps things are looking up.


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