E3G

Keynote Address to European Environmental Bureau

By Chris Littlecott

Prosperity is the Foundation for Political Action

Prosperity is the foundation of political stability, and the motor of effective political action. Europe has long and bitter experience of how economic depression and inequality can fuel political extremism and armed conflict. These lessons form the central founding principle of the European Union: that economic interdependence between states – not strategic competition – is the foundation of prosperity and stability.

In a world of accelerating globalisation, where the need to adapt economically drives social and political tensions, Europe’s successful response to its past mistakes carries a global lesson.

However, at the time when Europe should be leading efforts to construct a stable and open world system to manage these tensions, Europe faces a crisis of economic confidence. Only 6% of its citizens think it will remain an economic superpower, and only 16% see globalisation as an opportunity.

This lack of economic confidence undermines Europe’s ability to act globally to maintain the conditions for its future prosperity and stability.

As a result, the political debate on European reform has often become a caricature of choice between risky and uncaring Anglo-Saxon dynamism, and secure and fair Continental decline. This framing is neither accurate nor useful. Neither model has the answer to the challenges that face Europe in the coming decades, as we attempt to manage the rising prosperity and expectations of 6-8 billion people on a planet where environmental and resource limits have already been reached.

New Challenges, New Fears

Europe does face new economic challenges, but also has many misplaced fears. Long-term and youth unemployment is unacceptably high in several European countries. Competition from the US and Japan is now compounded by the rise of new economic powers led by China, India and Brazil. The aging and stabilisation of Europe’s population will reduce the raw growth rate of the economy, and increasingly tight resource and environmental constraints are driving higher prices and threaten to undermine economic development in large parts of the world.

The first step in facing these challenges is to regain perspective on Europe’s economic performance. The greatest difference between recent European and US economic performance is the faster growth of the US population and longer hours worked. The EU will remain the world’s largest trading region and source of outward investment for at least twenty years. The EU adds around two times more global purchasing power every year than China does, and will outstrip China as a growing market for around 20 years.

Despite the often doom-filled rhetoric, Europe will retain significant power to shape the global landscape for at least the next two decades; if it chooses to exercise this influence.

The root of current concerns among European citizens lies in a failure to generate adequate employment. It is unsurprising then that reforms which are perceived to reduce employment protection and increase economic competition are not politically popular.

There is also often confusion – deliberately spread by partisan commentators in publications like The Economist - over whether Europe has the long-term fundamentals for healthy economic performance, or is it somehow intrinsically crippled by demographic, cultural and structural weakness?

Happily the majority of serious economists take a more optimistic view. They agree that Europe’s current employment problems are not part of a long term trend connected to demographics or global competition. There is no economic reason why an aging society should create fewer jobs, and many reasons to expect increased employment demands in critical age-related service areas.

This is where the focus of Europe’s political leaders appears to diverge from public concerns. The Lisbon agenda often seems to be more about European leaders’ perceptions of the falling “economic power” of the EU relative to other major countries, than to be an attempt to secure prosperity, well-being and security for European citizens in a changing world.

The resulting debate uses exaggerated fears about Europe’s long term economic viability to push through reforms. But these fears over long term prosperity are creating a debilitating lack of political confidence. Producing political stasis just when Europe needs to make critical choices to preserve its future prosperity and security.