Europe Lags Under Anticapitalist Sentiment
June 15, 2005
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France and the Netherlands' rejection of the European constitution are indications economic malaise in Europe must be fixed before further political integration is attempted, experts say.
"Everyday I have to put up with the strikes, the declining living standards, the lack of jobs, so yes I will say that the EU really needs a facelift," said Sabine Herold, a spokeswoman for the libertarian think tank Liberte j'ecris ton nom, in a debate at the American Enterprise Institute in Washington Monday. "When you aggregate bad models all together, this doesn't make a good model."
Experts agree that with a 10 percent unemployment rate, rising taxes, and a gross domestic product that trails that of the United States by 1 percent, Europe is ripe for reform, but questions remain as to whether welfare-heavy countries such as Germany and France can overcome their reservations of free-market capitalism.
Although the no vote was partly a domestic protest against delegating economic control to bureaucrats in Brussels, Robbert VanBattenburg, head of global research at Louis Capital Markets and a frequent commentator for Bloomberg TV, says there is a bigger story at hand.
The EU presented reforms modeled on a U.S.-style economy, but while the United States and Britain retreated from the economic arena, taking a hands-off approach in the 1980s, France and Germany still opt for state subsidized industry.
When French Telecom went into financial turmoil in 2003, the government backed a $18 billion rights issue by the company, the largest rescue in European corporate history. Currently, Télécom has a debt burden of $80 billion.
But VanBattenburg says while keeping a company afloat appears good for country, the opposite is true.
"Sometimes government has to have a hands off approach and let a company go bust," he told United Press International. "It's the only way to get discipline in the financial and corporate system.
"When the U.S. and U.K. took a hands-off approach in the 1980s, it essentially allowed countries to move production capacity like factories and plants to low rate countries like Mexico, so the U.S. and U.K. could in turn shift towards service based economies."
By offering underhanded government support -- 40 percent to 50 percent of the French working population is government employed -- countries such as France and Germany are stuck in the industrial economy of the 1970s, VanBattenburg said.
A pan-European economy would allow for the free flow of resources across all 25 countries, freeing up France's resources to move toward a service-based economy, but the general population, at least in France and the Netherlands, is concerned with an influx of cheaper labor from Eastern Europe, a professor specializing in international finance told UPI.
"Europeanization means that full competition will begin for jobs and scarce resources and that there will develop a European culture that will subsume specific local cultures as happened in the United States," said Walter Schubert, chair of the finance department at La Salle University in Philadelphia.
EU trade commissioner Peter Mandelson blames a populous that fears globalization, job losses and delocalization.
"In America people are comfortable with the idea of risk, of creative destruction," Radek Sikorski of the New Atlantic Initiative said. "They are comfortable with the idea that you might have to switch jobs, or you might have to look for a new job. In Europe, people are prepared to pay a higher premium for security."
But is the price too high?
U.S. Treasury Secretary John Snow cautioned against anti-capitalist rhetoric before a crowd of reporters in Brussels Tuesday, warning policies discouraging free markets and competition would curb investment from abroad.
Senior fellow at the Council on Foreign Relations, Charles Kupchan agrees.
"I've found the political positions the French and German governments have taken of late to be nothing short of irresponsible," Kupchan said, referring to a remark by the leader of the Social Democratic Party, who referred to capitalists as locusts. "And one thing you can say for the voters of France and Germany is that they saw it for what it was - bulls--. Perhaps that's a good sign that we may be moving forward."
With President Jacques Chirac's popularity at an all-time low, and German Chancellor Gerhard Schroeder's chances of re-election equally slim, the general public seems to have dissented against the costs of their social model.
But the public still cannot shake their aversion to capitalism.
"The people have to understand the merits of capitalism, which I'm not sure they do," VanBattenburg said.
Herold, who came to prominence last summer when Liberte led two anti-government-union rallies, blames government unions, which she says are positioned in the extreme left and are "almost communist," for "brain washing" the French populous about the ills of capitalism.
"In school, I was told the U.S.S.R. was a kind of alternative model to the U.S. although the U.S.S.R. had already been collapsed for about 10 years," Herold said.
"Everyday I have to put up with the strikes, the declining living standards, the lack of jobs, so yes I will say that the EU really needs a facelift," said Sabine Herold, a spokeswoman for the libertarian think tank Liberte j'ecris ton nom, in a debate at the American Enterprise Institute in Washington Monday. "When you aggregate bad models all together, this doesn't make a good model."
Experts agree that with a 10 percent unemployment rate, rising taxes, and a gross domestic product that trails that of the United States by 1 percent, Europe is ripe for reform, but questions remain as to whether welfare-heavy countries such as Germany and France can overcome their reservations of free-market capitalism.
Although the no vote was partly a domestic protest against delegating economic control to bureaucrats in Brussels, Robbert VanBattenburg, head of global research at Louis Capital Markets and a frequent commentator for Bloomberg TV, says there is a bigger story at hand.
The EU presented reforms modeled on a U.S.-style economy, but while the United States and Britain retreated from the economic arena, taking a hands-off approach in the 1980s, France and Germany still opt for state subsidized industry.
When French Telecom went into financial turmoil in 2003, the government backed a $18 billion rights issue by the company, the largest rescue in European corporate history. Currently, Télécom has a debt burden of $80 billion.
But VanBattenburg says while keeping a company afloat appears good for country, the opposite is true.
"Sometimes government has to have a hands off approach and let a company go bust," he told United Press International. "It's the only way to get discipline in the financial and corporate system.
"When the U.S. and U.K. took a hands-off approach in the 1980s, it essentially allowed countries to move production capacity like factories and plants to low rate countries like Mexico, so the U.S. and U.K. could in turn shift towards service based economies."
By offering underhanded government support -- 40 percent to 50 percent of the French working population is government employed -- countries such as France and Germany are stuck in the industrial economy of the 1970s, VanBattenburg said.
A pan-European economy would allow for the free flow of resources across all 25 countries, freeing up France's resources to move toward a service-based economy, but the general population, at least in France and the Netherlands, is concerned with an influx of cheaper labor from Eastern Europe, a professor specializing in international finance told UPI.
"Europeanization means that full competition will begin for jobs and scarce resources and that there will develop a European culture that will subsume specific local cultures as happened in the United States," said Walter Schubert, chair of the finance department at La Salle University in Philadelphia.
EU trade commissioner Peter Mandelson blames a populous that fears globalization, job losses and delocalization.
"In America people are comfortable with the idea of risk, of creative destruction," Radek Sikorski of the New Atlantic Initiative said. "They are comfortable with the idea that you might have to switch jobs, or you might have to look for a new job. In Europe, people are prepared to pay a higher premium for security."
But is the price too high?
U.S. Treasury Secretary John Snow cautioned against anti-capitalist rhetoric before a crowd of reporters in Brussels Tuesday, warning policies discouraging free markets and competition would curb investment from abroad.
Senior fellow at the Council on Foreign Relations, Charles Kupchan agrees.
"I've found the political positions the French and German governments have taken of late to be nothing short of irresponsible," Kupchan said, referring to a remark by the leader of the Social Democratic Party, who referred to capitalists as locusts. "And one thing you can say for the voters of France and Germany is that they saw it for what it was - bulls--. Perhaps that's a good sign that we may be moving forward."
With President Jacques Chirac's popularity at an all-time low, and German Chancellor Gerhard Schroeder's chances of re-election equally slim, the general public seems to have dissented against the costs of their social model.
But the public still cannot shake their aversion to capitalism.
"The people have to understand the merits of capitalism, which I'm not sure they do," VanBattenburg said.
Herold, who came to prominence last summer when Liberte led two anti-government-union rallies, blames government unions, which she says are positioned in the extreme left and are "almost communist," for "brain washing" the French populous about the ills of capitalism.
"In school, I was told the U.S.S.R. was a kind of alternative model to the U.S. although the U.S.S.R. had already been collapsed for about 10 years," Herold said.
