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European Debt Crisis

The Fall of Europe

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The 2008 financial crisis was the worst global downturn in more than seventy years, since the Great Depression of the 1930’s. Four years on, much of the world has moved on. The United States private sector has aggressively deleveraged even as banks have recapitalized themselves, and as a consequence, private consumption, lending and job creation have begun to move in the right directions. China invested some of its huge trade surplus in large-scale infrastructure works to support slack exports and tide itself over the recession. Price and wage inflation, and rising asset prices remain problematic, but China does not seem due for a “hard-landing” just yet. Some emerging markets, like Brazil, barely felt the recession at all and are buoyant.

The only major economic region that is still suffering is Europe. In fact, Europe is in worse shape now than it was in 2008, in part because many national governments refused or delayed the necessary reforms in their economies, preferring to put it all off to a plot by the “Anglo-American powers” or “Goldman Sachs”. Europe today is the major source of economic and financial instability in the world and the most likely catalyst for a “double-dip” global recession in the near future.

The eyes of the world are understandably focused on Greece, and rightly so. But Greece is a symptom of the malaise that afflicts the Old World, not its cause. The cause of the disease is the structural and institutional deficiencies which leave the European Union, in its current incarnation, without the tools and framework to respond to a crisis of this magnitude. Deficiencies which have, in fact, exacerbated it.

This article is not about the causes of the disease – those have been reviewed ad nauseam in the economic and financial press. What we have to consider are the likely implications of the European crisis on the world order.

Götterdämmerung

Even before the crisis, Europe was growing increasingly irrelevant to world affairs.

This sounds like a bold statement, but it is true. We can demonstrate this empirically (the only sort of demonstration you’ll find in Common Sense). Take, for example, the percentage of world GDP by region:

 

Source: World Bank, World Development Indicators. GDP is in constant 2000 US$

While pundits have been talking about the rise of China and the decline of the United States, what we find is that the USA has been remarkably successful at defending its percentage of global GDP, which hovers right around 28%. China has grown from 1% to 8% of GDP and the “rest of the world” has also increased from 22% percent to 29%. The biggest losers: Japan and Europe. Japan has declined from a peak of 17% of world GDP in the 1990’s to 12%, while the European decline has been even more pronounced, from 34% to 23% of GDP. By this measure, the American economy has been remarkably successful.

In terms of global military expenditures, Europe still spends a substantial amount of money in absolute terms, but several factors make this spending less efficient than it might be. Western & Central Europe spent about 2.5x China’s defense expenditure in 2010; however, China spent more than twice as much as the closest European nation.

Table 1. Top Ten Military Spenders in 2010
Rank Country

Spending (a)

Change

   

2010 ($bn)

2009-2010

1

USA

698.0

2.80%

2

China (b)

119.0

3.80%

3

UK

59.6

-0.80%

4

France

59.3

-8.40%

5

Russia (b)

58.7

-1.40%

6

Japan

54.5

0.80%

7

Saudi Arabia

45.2

4%

8

Germany (b)

45.2

-1.30%

9

India

41.3

-2.80%

10

Italy (b)

37.0

0.30%

       

(a)

In nominal 2010 dollars  

(b)

Estimate    

 

Source: “Background paper on SIPRI military expenditure data”, Stockholm International Peace Research Institute”, 11 April 2010

Even though European nations do coördinate weapons programs, munitions and logistics to a certain extent, there are still great inefficiencies and wasteful overlap in procurement and force structure. A dollar spent in European defense agencies does not have the same effect as a dollar spent in China.

Furthermore, the trend is towards ever greater decline. Western and Central Europe is the only region in the world which has experienced no investment in defense in real terms.

 

 Source: “Background paper on SIPRI military expenditure data”, Stockholm International Peace Research Institute”, 11 April 2010

If Europe was rapidly disarming during the “boom years” of integration, what can we expect during the “lost decade” following the crisis? The demographic pressure on European health and social services alone will put significant pressure on national budgets.

The events of 2011 amply demonstrated Europe’s military weakness. Faced with a UN mandate to enforce a “no fly” zone over Libya, Europeans struggled to meet even this very limited objective and would have been unable to do so without substantial US logistical and intelligence support. It is no secret that US pilots flew many of the precision strikes against Libyan air defense sites in the early days of the war; nor that Europeans would have been unable to maintain an effective aerial presence over the country without US tanker support and US satellite and drone intelligence.

 

 

Eurofighter Typhoon

If Western Europe cannot project force against a militarily insignificant nation which is on their doorstep, what kind of support can be expected in future conflicts with more powerful opponents? Apparently, not much.

Who moved my soft power?

Europeans readily recognize their military incapacity, but argue that it is compensated for by their “soft power”. Soft power is usually defined as the capacity to influence outcomes through a combination of economic pressures and incentives, cultural influence and alignment with international norms of behavior. Leaving aside for a moment the argument that all of those elements of soft power are only made possible through the possession of hard power, let’s see how Europe fares in the international arena of “influence”.

We’ve already shown how Europe is increasingly losing weight in the global GDP scale, which significantly blunts the power of economic pressures and incentives. Another indication is the support that European nations receive for their motions in the UN General Assembly. As a proxy for “cultural influence”, there is arguably no better proxy. Unfortunately, Europeans fall short on this measure as well.

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Gowan, Richard and Brantner, Franziska, “A Global Force for Human Rights? An Audit of European Power at the UN”,  September 2008. European Council on Foreign Relations

If the vote pattern indicates anything, it shows that European cultural influence and the international support for European values and norms has eroded considerably even before the crisis.  The ongoing spectacle of European bumbling through its greatest crisis as an institution cannot be helping very much. In just a decade, Europe has gone from setting the terms of negotiation with rising third world nations like Brazil and Turkey, to being lectured on fiscal rectitude by the former and contemptibly ignored by the latter. No one in Ankara talks seriously about joining the EU, certainly not on the terms set by Brussels.

By any objective measure, Europe has lost weight in the world and is the brink of irrelevance. The next decade does not provide much hope for a change in this dismal trend.

The Wolf at the Door

Does any of this really matter? Should anyone, even Europeans, care that they are no longer capable of projecting power, imposing their will, enforcing treaties and norms in the face of – potentially armed – opposition?

The answer is yes.

 Robert Kagan has written an insightful book on “The World America Built” in which he argues that the international order of free trade, democratic regimes and liberal norms is neither a product of human evolution, nor a guarantee of the future. It exists because the liberal market democracies of Western Europe, North America and Oceania fought for it. Through two world wars and a long cold war, it was the sacrifice borne by these nations and their willingness to bear the burden of defense –  and sometimes war – that allowed liberal institutions to take root and spread.

What would the world have been like had Imperial or Nazi Germany won? What if the Soviet Union had been the global hegemon? Whatever it might have looked like, it would not have been liberal or democratic.

Mr. Kagan is right to say that there is no inevitability to our world order, unlike the triumphalist assertions of Mr. Fukuyama in “The End of History”. Our world order stands so long as the balance of power lies with those who would sustain it. Should the balance of power tilt decisively in favor of the world’s autocracies, we would see the number of democracies in the world fall dramatically and the liberal regime of human rights and free markets replaced with one of state control, “order” and conformity. It has happened before and it can happen again.

A Force for Good

Today, the United States enjoys an overwhelming preponderance of military and economic strength. But it does so because it has so many like-minded allies in key parts of the world. We don’t have to actively defend these regions and they pose no threat to us; on the contrary, they are a source of strength which allows the US to be a “hegemon on the cheap”. Canada, Europe, Japan, South Korea, Australia – these are cornerstone allies. The US also has vital security arrangements with Turkey, India, Taiwan, the Philippines, Egypt, Mexico, Brazil and many Latin American nations. Today’s world order works pretty well to make sure that even revisionist states like China and Russia play by the rules and watch their step.

It is in the vital strategic interest of the United States, and of all people everywhere who value the current world order, that the balance of power remain with the world’s democracies. Brazil, India, Turkey and increasingly Indonesia are on the side of democracy. China and Russia are both autocratic, revisionist states that have no love for the current order, Russia less so than China. Even so, the United States must make every effort to ensure the continued success and prosperity of her key allies, especially our Japanese and European who are under the most pressure.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Gowan, Richard and Brantner, Franziska, “A Global Force for Human Rights? An Audit of European Power at the UN”,  September 2008. European Council on Foreign Relations

Returning to the UN General Assembly, where we saw EU influence eroding, it is necessary to mention that US influence had declined even more sharply in the wake of our intervention in Iraq. What’s important, though, is to understand the composition of the voting blocs. The authors of the report (the European Council on Foreign Relations) divided the General Assembly into four blocs based on how often a nation voted in favor of an EU position. These are:

  • “Wider Europe” – the 27 nations of the EU and 17 additional European nations that consistently vote as a bloc in support of common European positions;
  • “Liberal Internationalists” – another group of 44 liberal democracies that include the United States, Canada, Israel, South Korea, and most Latin American nations. These generally vote in favor of EU positions (which are, after all, those of liberal democracies) with some exceptions;
  • “Swing Voters” – The bulk of the General Assembly, 85 “non-aligned” nations which include most of Africa, South East Asia, and the Middle East. India is one of the few truly liberal democracies in this group;
  • “Axis of Sovereignty” – the hard core of 19 states that consistently oppose EU positions due to concerns over “national sovereignty”. Led by China and Russia, these are the blatantly autocratic states. Concerns over “national sovereignty” are nothing more than a euphemism for state repression. Democratic liberal values are anathema to this group.

That is the balance of the world. The liberal democracies are less than half of the sovereign states (88 vs. 104) though still much more numerous than the true autocracies (19). Nevertheless, we are playing for the hearts and minds of those swing voters in a Great Game to decide whether they will join the liberal club or the totalitarian club. It is crucial that we win that game.

It might be tempting to focus on our own domestic problems, to leave the Europeans to their own devices. They got themselves into it, they can get themselves out of it. That would be an extremely short-sighted attitude. Americans have the responsibility to preserve what we can of the system that has brought unprecedented levels of prosperity, peace and stability to friends and foes alike – there is no one else to do it.

For that reason, we cannot look on with disdain or even equanimity as Europe lurches from one crisis to the next. We must ensure that whatever course Europeans take, it is successful, and that it keeps them on the path of democracy and liberalism. That may mean making some unpopular and politically untimely contributions to the IMF and European rescue funds. It may mean actively purchasing some shady European sovereign debt. Yet the billions we invest to sustain the European Union, could save us hundreds of billions later on if we can prevent a collapse of the EU. The last time the European order collapsed was in 1934 and I don’t need to remind anyone how that turned out.

But in return, Europeans must acknowledge that the burdens of defending the global order are heavy, and have been borne increasingly by the United States alone. In other words, they’ve been skating since the Wall came down. Once they have put their house in order, they must pick up more of the burden of defense. That means long-term investments in the sort of advanced military hardware that is necessary to survive and win on a modern battlefield. It means build a credible force projection capability in equipment and logistics. It means greater integration of European militaries within Europe as well as with the United States and other key allies. It means bringing NATO back from the brink of oblivion and turning it into an alliance of liberal, democratic states around the world: there is no reason why Japan, Australia or South Korea cannot be part of NATO.

Would that upset certain nations? Absolutely. It would upset the very nations we want to keep honest – Russia, China, Iran, North Korea. The autocracies. The rest of the world will breathe easier and the possibility of and need for war will diminish.

Vis pacem para bellum.

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