World Review | Europe’s major challenges in politics, economics and defence

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Europe’s major challenges in politics, economics and defence

Europe’s major challenges in politics, economics and defence
Europe's energy-intensive steel industry is moving to the United States (photo:dpa)

WHEN the Berlin wall fell in 1989 and the Soviet threat appeared to have ended, it was felt there were no limits to Europe’s development.

Europe was, in a geopolitical context, an economic giant with significant economic growth, social stability and a robust legal system. The integration of the European Union was on track.

This culminated in the introduction, 10 years later, of the euro as a common currency, based on the economically sensible Maastricht criteria with a European Central Bank, modelled on the German Bundesbank.

The principle of subsidiarity and competition between states and regions was accepted.

Today the political picture is different.

In an international context Europe is no longer an economic giant and has failed to find a proper way to protect its global interests.

Each of the 27 member states has its own foreign policy and the coordination of these differing foreign policies is poor, despite the creation of Baroness Ashton as High Representative of the Union for Foreign Affairs and Security Policy.

In some cases, a certain decentralisation of foreign policy is advantageous due to certain special relations, like France with Africa, Spain and Portugal with Latin America and the UK with the Commonwealth. Nevertheless, much better coordination will be required to ensure a future without unnecessary security threats.

Unfortunately, instead of following the same path and concentrating on supporting the four freedoms - people, goods, services and capital – with a coordinated foreign policy and a common policy on security and defence, the present crisis is being used to introduce a much stronger centralised control of fiscal, financial and economic matters.

This will result in less competition between the regions, a harmonisation in mediocrity, additional costs and a build up of cluster risks - non-diversification risks.

It will, however, strengthen the power of the political institutions and create a gulf of antagonism between the people and the political class.

National elections are being held in two important European countries, Italy and Germany, in 2013.

In Italy the election will be mainly between two protagonists, Mario Monti, a technocrat, and Pier Luigi Bersani, from the left. It is unlikely that former Prime Minister Silvio Berlusconi will attract enough votes to play a major role and Mr Monti is likely to reject a coalition with him.

Mario Monti has done very little so far in curbing costs and has tried to balance Italy’s budget mainly by increasing taxes. Mr Bersani is not expected to reduce government expenses either.

The choice will be between the technocrat and the politician. Real reforms are therefore not expected. Unfortunately, as a consequence, the highly inefficient judiciary and bureaucratic systems, the over-regulated labour market and the education system based on a high number of inadequate and demotivated teachers will remain unchanged in Italy.

Chancellor Angela Merkel is likely to be re-elected in Germany but will need a partner in government again. A coalition with the Social Democrats is likely.

It is very difficult to make an assessment of Mrs Merkel’s strategy or vision as it seems she adapts these to the issues of the moment.

Obviously her tactics are twofold:

On the one side she likes to let a situation unfold until it appears there is to be only one possible outcome. This one solution will then be forced on the democratic institutions and the people.

The other strategy is to eliminate the opposition by including their main issues in her programme.

With all respect to Mrs Merkel’s political skill, there appears to be a lack of vision, strategy and a German government point of view.

And it is Germany – which lacks a clear strategy – which is considered to be leading Europe.

The other governments of the major countries in Europe, especially France, also fail to show leadership.

President Francois Hollande bases his policy on promises which cannot be fulfilled.

Britain is positioning itself more and more on the periphery of the European Union.

UK Prime Minister David Cameron has a double problem. He has to consider the widely divergent internal opinions at home and he faces profound disagreements with continental European partners in a number of aspects.

However, we have to bear in mind that most problems are not issues of the union but home-made problems of national states.

As a result the European political institutions do not appear to be able to confront the shared economic and social challenges. Solutions to remove the roots of the European problems are therefore unlikely to emerge.

Today Europe’s economic and, even more, financial problems, are considered to be the main issue of the old continent. They are also one of the main threats to the world economy.

What is the issue? Simply that Europe can no longer finance its oversized public structures and its costly welfare system.

Europe will be forced to take a basic decision. Either it tries to cling on and risks 20 years of recession as Japan has experienced. Or, it takes drastic measures to reduce public spending - including the number of people employed in public services - and increases the private sector.

The unfortunate fact is that both measures have political and social ramifications. The first is not to risk courageous decisions and linger on, ignoring the resulting political and social drawbacks.

The second one, being a total change of paradigm, would mean that certain political positions of the past have to be sacrificed for a more prosperous future. This would signify accepting a more liberal economy, with simplified labour and tax laws, and a less stringent European competition law among some other issues.

Europe lacks growth and loses competitiveness. Its economy is over-regulated with high and often inefficient national overheads - exaggerated government costs and a welfare system which is frequently inefficient and with excessively high administrative costs.

A symptom of this lack of growth and reduced competitiveness is increasing unemployment. High unemployment among young people is socially very dangerous.

Europe also faces a potential inflation problem in the long run and the financial system, and especially the large banks, have still not been stabilised. A general nationalisation of the large banks - whatever it is called - is in sight, supported by the ‘European Banking Union’.

However, the general problem is the lack of public information, and even misinformation, about the real underlying reasons and the dramatic extent of the economic and financial crisis of European governments.

Europe is very proud of its achievements on renewable energy. Although this is an interesting task, one has to bear in mind that the electricity supply has to be reliable and able to meet demand.

Alternative energy sources will continue to rely heavily on subsidies. If Europe is serious about the nuclear phase-out, it will have to build a huge number of gas-fired power plants for the base load as well as constant stand-by suppliers when there is no sun or wind. This will have a huge impact on CO2 emission targets as well as electricity prices.

European regulation on the use of renewable energy and the cost of subsidies is forcing up energy costs and making EU industry less competitive.

Unfortunately, the nuclear energy issue has always been political and emotional. Siemens with its KWU company, for instance, was inhibited by law in its work and research in this sector and sold KWU to the French company Areva.

Nuclear technology of the European standard is now very safe and highly sophisticated.

The good news is that through the ‘shale gas revolution’ Europe will become much less dependent on Russian natural gas and therefore less likely to be held hostage for political reasons. The cost issue remains, however.

This has meant that investments, especially in energy-intensive industries, have moved to countries with lower energy costs and, for example, the aluminium industry has relocated to Norway and now the international steel industry is moving to the US.

The world has never been, and will never be, a safe place.

Europe is totally dependent on the US for its defence and has to be really grateful that Nato still exists. There is an old saying that in every sizeable country there will always be an army. And if this is not the country’s army, it will be a foreign army, which is normally an occupational force.

In the last 60 years the US army in Europe - probably for the first time in history - has not been considered an occupational army. But we cannot be sure that the US will continue this role in the future.

Defence costs globally are increasing drastically. Only two, those of Europe and its protector, the United States, are decreasing.

Europe will have to make determined efforts to improve its security and will have to invest more in defence.

The defence and security of Europe will become even more important with the unrest in the south of the Mediterranean, the Middle East and the unpredictable politics of countries in the former Soviet Union.

The US will remain a crucial defensive ally for Europe.

It has to be noted that the US security focus has moved from Europe to the Pacific and that as the US becomes energy self-sufficient it will trigger changes in America’s geostrategic policy.

Europe has huge potential. It has great universities, some of the world’s best scientists and engineers, among the world’s best-managed companies, an entrepreneurial middle class and a well-educated population.

These are strengths on which the future can be built, provided we have political institutions with the wisdom to limit the role of the state.

This can only be done successfully on the principle of subsidiarity which means a real democratic bottom-up approach. What can be done on a municipal level should not be dealt with on the regional or national level and the same should also be applied for regions and national states.

The role of the European Union should be to ensure the four freedoms as well as a common security and defence policy and a coordinated foreign policy.

Harmonisation of products should not be achieved by regulation but should be left to the markets.

Europe has the opportunity to regain a position of economic leadership based on these principles and could become a credible global political player again.

It is to be hoped that reforms to meet these objectives will emerge out of the present crisis.

Prince Michael of Liechtenstein

HSH Prince Michael of Liechtenstein studied commerce at the Vienna University of Economics and Business, and consolidated his studies by assignments for the banking and industrial sectors in ...

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