Friday, March 24, 2006

Is Europe heading for a new dark age?

I remember having dinner, with the indomitable Matt Johnson and some dickhead DFAT grads. The conversation entered some pre-scripted DFAT talk about the importance of Europe, and its influence on Australian foreign policy. At which point, Matt dryly pointed out that Europe has a declining fertility rate, and decreasing productivity. In other words, without significant change, their economy will dry up and they’ll be the new Africa.

Of course the DFAT grads had no idea what to say to these new thoughts, and all they could come up with were more pre-programmed meaningless DFAT dribble. To which Matt replied, it's mathematics, it will occur. I think dinner ended soon after.

Anyway, just saw a few articles on

  • violence in Paris as 23 000 protest against making employment of youth easier, i.e., reducing long term structural unemployment;
  • France making two of its utility companies to merge in order to stop one merging with an Italian company (in blatant breach of EU competition law);
  • EU opposed to trade liberalisation, damaging EU productivity and stopping EU firms from access to cheaper inputs and hence, reducing EU exports.

What does all this mean …. well the EU, and especially the French, are trying their hardest to reduce European productivity. A very very interesting approach to economic policy when, given the EU’s low and reducing fertility rate, it needs massive productivity increases in order to SUSTAIN their current living standards … lets not even talk about the implications for INCREASING living standards!!!!

I wonder how these facts will affect DFAT dinner table conversation?!? No doubt something about how Nairobi is the new Paris.


Matt Canavan said...

But Luke from a trading perspictivce Europe is still quite important. We send 12 per cent of our exports to Europe and 20 per cent of our imports come from there. Making it the second biggest bloc in both imports and exports. Moreover, these proportions have stayed relatively constant over the last ten years.

No doubt, Europe will be of declining importance to Australia in the future. Yet the above figures suggest that even if it falls away a bit, it will still be important.

Likewise, Europe is still powerful on the world stage, indicated by its single-handed derailing of trade negotiations. And although Europe will be challenged by the emergence of China and India, given their existing strength, they will remain an important power in our lifetime.

Luke van Hooft said...

Good points Matt. However, Europe is only relevant through 'old' institutions (eg. WTO and UN). Increasingly, as the EU is becoming more obstructionist, the irrelevance of those old institutions are increasing.

Bilateral PTAs will over-take the WTO before too long, and non-WTO trade blocs will enter into joint PTAs. Without reform the WTO is dead.

In other words, the EU, unless it changes its ways, is destined to be on the outer of all important world affairs.

Asia and the US will become the centre of the world's focus.

According to DFAT data:

The value of Australia’s total trade in goods and services to the EU rose 2 per cent to $62.4 billion in
2004 and accounted for 19 per cent of Australia’s world trade.

The value of Australia’s total trade in goods and services to East Asia rose 13 per cent to $153.6 billion
in 2004 and accounted for 47 per cent of Australia’s world trade.

This puts Europe into perspective...

Matt Canavan said...

Well of course it depends how you define the blocs. But since East Asia doesn't have a common trade policy it is probably innappropriate to compare them with the EU.

A more apt comparison would be ASEAN, which accounts for only 16 per cent of our two-way trade.

Luke van Hooft said...

Its completely inappropriate to just include ASEAN countries ...... Sth East Asian countries?!?!? You need to include China and India to have a proper comparison of old world v new world.

Matt Johnson said...

Sure, Eurpoe is important. It is, for one, the Class A distorter of Agricultural trade. But as Luke points out, it is getting less important.

GDP per capita is flat to OK - but growth is absent. In a world where China and India posess nearly 40% of the people, and they are growing GDP per capita at over 5%, as well as population in India's case, math dictates that new markets and marginal consumers will probably be found outside Europe.

Europe is a power, but it is a declining power. They are stuck. They sooner riot than reform - and if they will not reform, they will need an incentive sapping 60+% tax take to maintain pensions and income support programs.