Forget Trump’s trade war; the real economic threat is in Europe, espe
ALMOST ANYWHERE you look these days, the economic news is heartening. The United States has rock-bottom unemployment and above-normal growth. China has tamed its crazy trade surplus and is starting to tackle its excessive debt. Europe and Japan are out of the doldrums. Across the world, 120 countries, accounting for three-quarters of global gross domestic product, saw growth accelerate in 2017. The IMF expects this year and next year to be even better.
The political picture could hardly be more different. The Trump administration has purged reasonable officials and elevated ideologues. China’s leader seems intent on governing for life and enforcing mind control via Internet surveillance. His Russian counterpart goes one better, exporting psychological manipulation.
Meanwhile, in the European Union, a Trumpian has just won re-election in Hungary. Britain is bent on a witless policy of de-globalisation. Even in France, one of the world’s few political bright spots, a reformist president faces angry street protests and his poll numbers are slipping. Freedom House judges that in 2017 democracy faced its most serious crisis in decades.
This economic/political contrast begs a question: How might political dysfunction derail economic expansion?
To many in the US, the escalating trade fight with China looks like the obvious answer. But for now, that fight is mostly just rhetorical — nearly all the tariffs that both sides have laid out don’t take effect until some unspecified future. With luck, the panicky selling on Wall Street will persuade President Donald Trump that a deal is better than a market collapse ahead of the midterm elections. On Sunday, the president reaffirmed that “President Xi and I will always be friends” and that “a deal will be made.”
In Europe, on the other hand, the obvious danger lies elsewhere. The spring of 2018 was meant to be the time when the continent fixed its rickety monetary union. Major national elections — in France, Germany and Italy — are now done, supposedly opening a window for reform before next year’s European elections. But because of that toxic tide in politics, economic reform appears unlikely to happen. Barring a major political surprise, an eventual repeat of the euro zone crisis is beginning to seem inevitable.
An uneasy history
Europe’s predicament reflects an earlier time in which politics and economics became unhinged from one another. In the euphoria following the Cold War, pro-globalisation, anti-nationalist, utopian statesmen cooked up the idea of a single currency for Europe. They ignored the economic obstacles, including the reality that a single currency and a single interest rate are unlikely to serve a territory as large and varied as Europe. The monetary policy that suits Germany at any given time probably won’t be the one that happens also to suit Italy or Ireland. To manage this problem, you need large budgetary transfers from booming areas to depressed ones. You also need banking crises
The US has has higher lab periences a do to another stat barriers. But E of the road. Th have a single c budgets and de As the old Tex thing you’ll fin is a dead arma
European ec multiple ways But they can’t countries of th write the preca ery, which they The rising tide