The European sickness is still haunting the world economy. Though the US economy is slowly coming up, experts like Robert Samuelson say the weak Europe is a drag on it.
The “magnificent” growth story of colonial Europe and its offshoots is not so old. In 1750, only 27 per cent of the total manufacturing production in the world came from the so-called present developed nations in Europe, North America and Japan put together. At the same time, Latin America, Africa and Asia produced 73 per cent. But in 1953, the share of these countries fell to 6.5 per cent (Deepak Nayyar).
Even after the decline of the European political hegemony, its economy grew during the post-war reconstruction. The 20th century’s technological advancement was an added advantage. The population stabilisation helped it for enhancing the per capita income. Virtual warlessness could harness better human development indices across the board.
The long peace time which was rare in European history could bring the European nations together and the European Union was born. It was thought that Europe had been slowly transforming into a multi-national, multi-cultural political entity. But the honeymoon was short. In the dawn of 21st century, there were skirmishes. Uniting divergent economies with incomparable polities was an uphill task. But as a rare event, Euro was accepted by almost all countries with a rare exception like the UK.
The global recession in 2008 became the real spoiler of the fragile but beautiful experiment of having single currency for one continent with different and often conflicting eco-political interests. From 2010 onwards, recession started taking its toll. Greece faced a near-death experience. Ireland, Spain, Portugal and Cyprus were admitted in the critical care unit. The reasons for illnesses were different. For Greece, high public sector debt, generous public sector benefits and chronic tax evasion were the viruses. Iceland’s declining competitiveness and property bubble funded by banks which went bust and was taken over and underwritten by the state, caused government debt crisis. Portugal fell due to sluggish growth and high private and public sector debt. Spain’s weak banking sector could not hold the failure in construction sector. Banks in Cyprus collapsed partially like the Greek counterparts. France was looked down upon as a sick man of Europe. Germany acted as an engine of the European economy, but is still struggling to hold the water since the economy is slowing.
The question looming large across the continent is whether Euro can survive or not. The chief of European Central Bank, Mario Draghi, who was the president of Italian Bank, says Euro is irreversible. But he admits that in the Euro area, growth forecasts are discouraging. Italy is in recession and France has a 0.4 per cent growth rate. According to Draghi, unemployment is the worst enemy of Europe. Even in the UK, unemployment of youth under 25 years grew up to 20 per cent.
The crisis in the Euro zone is a textbook by itself. The monetary system in a country is the product of the political economy of that country. Mixed polities cannot establish an over-arching currency which suits all. United Europe is more a myth than reality in the eco-political sense. The extremely complex process of economic development cannot be contained by the imposed political super-structures which cannot deliver the functions of the states per se.
Europe may come out of the recessionary eclipse sooner or later, but experiment of one currency for different economies cannot be a success without the organic integration of the political economies.
John is member of Kerala State Planning Board