Europe and China

Steven Hill recently asked in a column for Social Europe Journal ‘Why is Europe Losing the Public Relations Battle to China?’ He claims that today there is a G-2 media hype which casts America as the existing superpower and China as the up-and-coming superpower. He asks ‘Where is Europe in all this’ when Europe is a leader in many technologies and has more Fortune 500 companies than the US and China combined? It is reducing carbon emissions and social inequality, it enacts healthcare, retirement, quality of life and shares its prosperity fairly broadly. Yet it is viewed as a place most people try to flee, if they can. Why is Europe getting so little respect and recognition, he asked?

I think this is a valid question. Europe isn’t seen as sexy. And it is not just Europhobic British media that heaps scorn on the European Union. Many European citizens on the continent share the feeling of being stuck: young people cannot find jobs; old people are forced into early retirement, small businesses cannot raise the capital needed to expand, old boy networks keep newcomers out, and cultural conformism imposed by rigid bureaucratic rules dampens innovative initiatives. As a consequence, social mobility is low. If your parents are rich, you are likely to do well; if they are poor, you do not have much of a chance to do better. By contrast, rightly or wrongly, America is still seen by many as the beacon of liberty and China as the new frontier. According to Steven Hill, this is a misperception. He may be right. But where does it come from?

I believe the answer lies in Europe’s failing governance. Both the United States and the People’s Republic of China are capable actors. One is a democracy, the other is not. But in both countries there is a unified political will. The European Union does not have that. Look at how the three powers dealt with the financial crisis: The US and China rapidly designed and implemented large stimulus packages to compensate for the loss of effective demand. They were willing to assume the consequences of increased debt, because they knew that this would re-ignite growth and protect them against social disasters. Europe, by contrast, dithered about how much to spend. Every individual member states’ government tried to keep their own pennies or cents, while hoping that the euros of its partners would be enough to get Europe out of the crisis. Social scientists call this the collective action problem that inevitably emerges when decisions are made in large groups of decision makers, such as the European Council. Member state governments represent partial interests and seek solutions that represent the smallest common denominator, but not optimal decisions.  Not surprisingly, the European stimulus was smaller than in other large economies like the USA and China. In October 2008, the European Union adopted a recovery plan amounting to 1.6% of its GDP, compared to 6.55% in the United States and 5% in China. This lack of decisiveness did not only prolong the recession unnecessarily; it even generated the subsequent euro crisis. For the debt crisis in Southern Europe and Ireland did not just occur because the Stability and Growth Pact failed to impose fiscal discipline. It is to a large degree the consequence of vanishing government revenue when GDP shrank by more than 4%. Hence, it is the incapacity to act decisively that is the ultimate root of Europe’s problems.

There are two ways to respond to this problem. Eurosceptics wish to return to the “good old days”, when nation states were sovereign and autonomous. Except that the old days were not really so good; cast your mind back to 50 million people killed in World War II. And also, the world has changed. Regardless of what Sarkozy, Cameron or Merkel thinks, Europe’s big countries are dwarfs. Not one of them represents more than 1 percent of the world’s population. Germany, the largest province of Euroland, is economically smaller than China and India and it represents hardly more than 4 percent of World GDP. Who believes that in this world European nation states can do anything else but be the ‘price taker of globalisation’, without any possibility of setting their own agenda or conditions?

The other option is political union: centralizing decision-making power at the European level for all matters that concern all European citizens. But only those. That would give Europe the power to act, or rather to inter-act with major powers like the United States and China. Remember Barak Obama, America’s Prince, did not come to kiss the sleeping beauty Europa when the dwarfs expected him in Madrid for the European-American summit? If Europe wants to be taken seriously it does not only have to speak with one voice, it has to have one will.

It is interesting to note that the euro is an example that this strategy works. Europe’s single currency is the second largest currency in the world. Its financial market in terms of bank transactions and bond market values is actually larger than the US market. It therefore presents a potential alternative reserve asset to the US dollar. Now, it is of course possible that our alpha-dwarfs Sarkozy and Merkel will ruin this asset through narrow electioneering. I believe the euro is too important for this to happen. The world needs Europe.

There is little doubt that the history of the 21^st century will be written by the United States and China. The first is on a slow economic path of decline, the other on the ascent. The USA still dominates militarily, but its economy stands on weaker feet than many are aware. China has the quiet strength of numbers. As the Chinese Vice-Prime Minister recently said when visiting Spain: “If each of the 1.3 billion people in China bought a bottle of olive oil or tasted a few glasses of wine, the demand would be greater than Spain’s annual supply. And if only a few in every hundred Chinese traveled to Spain every year, no hotel room in Spain would be left vacant. And for Spain’s transport, telecommunications, banking and insurance sectors, some of their biggest future customers would be Chinese”(China Daily, 4.1.2011). Thus, China has entered the world stage and will transform the economic and political environment everywhere.

Managing this transformation requires cooperation. China is certainly aware that it needs partners. History, especially European but also Chinese history, teaches us that when a hegemonic power declines, political and economic instability often follows. This is where Europe could play a useful role: by stabilizing the world economy and acting as an honest broker between conflicting interests. The Chinese leadership has understood this. China has repeatedly supported the euro in the recent crisis. It has not only expressed its confidence by words, but it has purchased Greek, Irish and Spanish Treasury bonds when European and American banks were dumping them and is willing to buy still more. In other words, China has understood what Europeans seem to miss: that it is worth preserving the European Union because it is a stabilizing factor in the world. But of course, this is only true if Europe can act. To create this capability is the task of Europeans.

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