Year XLII, 2000, Number 3, Page 151
American Economic Power and the Division of Europe
A lengthy period of expansion of the American economy, and a briefer one characterised by the devaluation of the euro against the dollar, are now giving way to a climate of uncertainty. This should not, however, lead us to lose sight of two structural factors, apparently contradictory, that encapsulate the nature of the current world economic balance and its weaknesses. The first of these involves the greater capacity for expansion of the American, in relation to the European, economy, and the leading role played by the dollar (neither of which are affected by the economic cycle). The second concerns the costs and the basic fragility of America’s economic hegemony.
The reasons for the superiority of the American economy are not economic but political. It is also worth pointing out that they have nothing at all to do with flexibility of the labour market. Claims that the euro’s long period of weakness, and the sluggishness of the European economy generally, can be put down to the rigidity of the labour market in Europe is nothing other than a hypocritical cover for what amounts to a politically-motivated propaganda operation. It is sufficient to recall that, in the 1980s, the European economy was more dynamic than America’s, and the legislation regulating labour relations in Europe at the time was not substantially different from that which is in place today; furthermore, Japan, which offered the highest level of social protection, was considered a true model of production efficiency. In fact, it was in precisely this period that the sluggishness of the American economy was widely blamed, at least in part, on the instability and uncertainty characterising labour relations in the United States.
The real reason for the superiority of the American economy — within the framework of the industrialised world — lies in the fact that the United States has a government that is equipped with considerable decision-making capacity and sustained by the democratic consensus of the citizens; it is this which makes it the only power able — albeit subject to a series of limitations — to play a hegemonic role at world level. It follows that the dollar, buoyed up by a stable and solid power, is regarded by economic operators the world over as by far the most reliable currency for international transactions. But this is only apart of the picture. The federal government of the United States, through a coherent economic policy whose aim is to promote the general interests of the American people, also drives the economy on a domestic level. Furthermore, with a continental size market whose smooth running it appears able to guarantee, it creates the conditions needed to attract a flow of foreign capital, European in particular, into the United States, capital which further enhances the efficiency of the country’s production system.
In contrast, the European Union is an altogether different reality. Unlike the government of the United States, the EU is a political entity that, rather tenuously united and devoid of democratic consensus, has neither the strength nor the capacity to make decisions and to act. The Council of Ministers, which can be seen as an inadequate substitute for a European government, is taken up not with the business of promoting the general interests of the Union but with that of mediating between the member states and, faced by their divergent interests, of seeking compromises; on the international political stage, meanwhile, Europe does not even feature. This absence of a political decision-making centre makes it impossible to exploit the enormous potential for development offered by the European market (which, let it not be forgotten, is considerably larger than the American market), because what is needed for this is the presence of a strong and dynamic government; furthermore, it reduces the bargaining power of European companies, and of the European economic system in general, on the world market. But in order to inject fresh impetus into the European economy, and to close the gap that now separates it from the American one, the Union is not in a position to use the exchange and interest rates as levers because the euro is already relatively weak in relation to the dollar and European interest rates are already lower than those in force in the United States. It might therefore seem reasonable to see the adoption of a budgetary policy of expansion (based on the boosting of public investments in infrastructures, the generous funding of scientific research and the sustaining of demand — all be this at the expense of a moderate level of inflation) as Europe’s only option. But even this solution is rendered impossible by the deflationary constraints placed on the member states of the European Union by the Stability Pact. And these constraints are certainly not justified by any doctrinarian self-imposed duty to comply with the dictates of the dominant economic philosophy. Instead, they are justified merely on the basis of Europe’s division, which gives rise, in many governments, to the legitimate concern that, without a sole decision-making centre shouldering the responsibility for putting Europe’s interests first, some of the governments of the Union would, if not checked by clear restrictions, succumb to the temptation to adopt beggar-my-neighbour policies, in other words, to manage their national budget thoughtlessly and irresponsibly, leaving their own partners to bear the consequences of their actions. And if this were to happen, doubts over the euro could easily resurface, the single market collapse and Europe find itself firmly on the road towards economic anarchy and national protectionism.
In these circumstances, it is inconceivable that the euro, regardless of its value as determined by the erratic trend of the money markets, might become the world currency, on a par with the dollar, that it once seemed destined to be. A currency’s capacity to act as a means of payment in international transactions certainly depends on more than just the parameters used by experts to rate the health of an economy, or the decisions of a technical body like the European Central Bank. It is founded on the confidence of those who use it, and while the momentary state of health of an economy can certainly be regarded as a condition for the generation of this confidence, it is certainly not the only one. Faith in a currency depends also, and above all, on the power of the entity that emits it, and thus on the role played by that entity in the world equilibrium, on its military strength, on its stability, and on its capacity to promote effectively the most technologically advanced production sectors, to create the infrastructures needed for development, and to ensure that its own producers enjoy conditions of fair competition on the international market. The reason why the euro, contrary to the expectations of many, has failed to live up to this task is thus the lack of a European government and of a European economic policy.
But there is another side to American economic hegemony. The United States has a huge trade deficit that is funded by capital inflow from the rest of the world, and in particular from Europe. What this means, substantially, is that the growth of the US economy is, in part, funded by European capital, and what this implies in the long term is a net transfer of European wealth from Europe to the United States whose justification is the guarantee of security that the political solidity of the United States confers, at least in the medium term and regardless of the momentary volatility of the markets, on investments made in the US market. It is an anomalous situation that contrasts sharply not only with the situation that prevailed in Euro-American relations in the twenty-five years immediately following the end of the Second World War, but also with that which has characterised all economic hegemonies in the past. Normally, a hegemonic power exports a quantity of goods and services that far exceeds the amount it imports, investing overseas much of the excess capital generated by these exchanges. And since the hegemonic power exports part of the wealth it creates, the countries subjected to its leadership in fact benefit from the role it plays. The fact that current relations between the United States and the rest of the world, and in particular between the United States and Europe, are characterised by the reverse phenomenon — where the United States is importing wealth instead of exporting it — is indicative of a grave weakness in America’s economic and political power.
If it is true that the political strength of the United States and of the US government instils in investors a sense of security so great as to explain the vast capital inflow that the American market attracts from the rest of the world, and from Europe in particular, it is also true that the country’s continually increasing trade deficit is, objectively, a source of insecurity — indeed, the US trade deficit certainly cannot be expected to exceed a certain limit without prompting reactions of anxiety, or even panic, among investors, and seriously depressing the country’s real economy. This interpretation is supported by the fact that the European market can be seen as only a very partial and imperfect alternative to the American market, because the security it can offer is inferior by far to the — already fragile — security that the American market is able to provide. Indeed, Europe’s stock markets are driven by Wall Street, whereas, in a reasonably balanced situation, European financial trends should compensate for the trend on the American stock exchange.
The fact is that the isolation in which the United States finds itself, as it struggles to manage its responsibilities at world level, has produced a marked imbalance between, on the one hand, the strength of its economy and, on the other, the quantity and scale of the burden of responsibility with which it is faced. The disproportion between the two is such as to render it impossible for the American government to manage its influence over the rest of the world in an open and progressive manner, in other words, through the diffusion of its wealth. Instead, it forces the United States to opt for a hegemony of the wait-and-see variety, one which uses prevalently military instruments and seeks to obtain the obedience of the conservative elites in the countries subjected to its domination, rather than looking to build a solid foundation for itself in the consensus of their peoples. In this way, the United States of America not only fails to promote the prosperity of the rest of the world, it also fails — able to offer nothing more than improvised and precarious solutions — to ensure its security. And it follows that a hegemony of this kind, one that attracts the wealth of others instead of exporting its own, will increasingly encounter pockets of resistance and hotbeds of tension, and thus can only be regarded as basically weak and unstable.
In this framework, Europe’s situation appears paradoxical. If only its politicians were able to detach themselves a little from their contradictory domestic and inter-European disputes, they would soon appreciate that it is the division of the continent that is condemning its economy, in a structural sense, to lag behind the American economy and, at the same time, that is preventing the euro from being, alongside the dollar, a currency for international transactions, thus jeopardising the wellbeing of Europe’s citizens and negatively conditioning the future of its youth. They would also see that Europe, by shirking its responsibilities at international level on account of its division, favours the more nationalist and conservative forces present within American politics, thereby introducing a serious element of instability into the whole world picture. Submitting to the US in this way, Europe is, in fact, failing to come to America’s assistance, failing to offer it a help that would prove crucial to its prosperity in the medium term, to the development of the rest of the world and to the stability of the international equilibrium.
But unfortunately Europe lacks politicians with the vision to realise this.