These ‘sick men’ of Europe
By Shadaba Islam
EUROPEAN policymakers went on Easter vacation this week hoping for a respite from the spate of bad news which has engulfed several of the continent’s leading nations in recent days. The focus is on the three “sick men of Europe” — Italy, France and Germany — which in the past days have lurched into political troubles mirroring their longstanding economic woes.
Elections in Italy may have resulted in the defeat of the mercurial Silvio Berlusconi and victory for respected opposition leader Romano Prodi but the wafer-thin majority secured by Prodi’s centre-left coalition does not augur well for the stability of one of Europe’s most politically volatile nations.
Next door in France, the government has caved in to mass protests and withdrawn a key labour reform bill, a move which many fear will further aggravate the long-stagnating French economy. The retreat has also damaged the reputation of Prime Minister Dominique de Villepin whose hopes of replacing President Jacques Chirac in next year’s presidential elections now appear permanently dashed. And while Germany has a relatively effective chancellor in Angela Merkel, she presides over an internally divided “grand coalition.” Meanwhile, the leader of Germany’s Social Democrats who rules with Merkel has resigned after a nervous breakdown.
Europe is much more than three countries, of course. But Italy, France and Germany are also the eurozone’s three heavyweights and members of the powerful Group of Eight (G8) club of industrial nations. Collectively they contribute just over two-thirds of the gross domestic product (GDP) of the eurozone and just under half that of the 25-nation European Union.
Economists say Italy, France and Germany face the same problem — a vicious cycle of high unemployment and high labour costs, a lack of funds needed to finance the welfare system, and heavily regulated labour markets. But more is at stake than just economics. The sense of uncertainty in Europe’s three biggest economies points to a continent afraid of change of all sorts.
Europeans appear increasingly beset by confusion and division about where their countries and the EU should be heading. The talk in Brussels and other EU capitals in recent months has been on how EU policymakers can ease public fears over globalisation and rising competition from Asian economic powerhouses, including China.
The long list of contemporary European concerns include the fear of Islam, fear of immigrants and asylum-seekers and an ever-increasing fear of losing even more jobs to countries with lower labour costs. Such anxieties led to the defeat of the European constitution by voters in France and the Netherlands last year and has also prompted the tide of protectionism sweeping across many countries in the bloc.
Further EU enlargement is in danger because many Europeans do not want Muslim Turkey to become a member and are fearful that EU funds will be siphoned off by poorer Romania, Bulgaria and Western Balkan states. Interestingly, most European politicians appear to be stoking such fears, instead of easing them. For example, combating immigration and keeping out refugees remains a top government priority in most EU nations although United Nations figures show a decline in the number of people trying to seek asylum in Europe.
Government focus on counter-terrorism also keeps many Europeans on edge as does the constant demands from governments that the EU impose quotas or slap anti-dumping fines on Chinese and other Asian exports. In addition, EU governments are now warning that the bloc’s “absorption capacity” will be a factor determining their decision to further expand eastwards.
The problem, say economists, is that while there is peace and relative prosperity across the continent, Europe is in the throes of a deep malaise, with the public and politicians unsure about the future. In most countries, while officials and economists know that tough reforms are overdue, politicians in power seem incapable of pushing them through in the face of strong public resistance.
Middle-aged Europeans are resisting reform because they fear facing old age without the social safety net built up over the past several decades, while young people worry about starting their careers in a climate of insecurity.
The controversial labour law which was adopted and then abandoned by the French government would have allowed companies to offer two-year contracts to workers under 26. But students were outraged because the bill also said that those contracts could be ended for any reason.
Interestingly, it was intended in part as a response to last year’s riots in poor and often predominantly Arab suburbs of Paris, where joblessness is high and hope low. The idea was that employers, freed of the need to keep bad hires on the payroll, would be more willing to hire young Arabs.
Most EU policymakers are equally worried that French efforts to undertake other much-needed economic reforms have been dealt a fatal blow by President Chirac’s decision to retreat on the labour law. Prospects for change in Germany also look grim. Last autumn, voters initially looked set to deliver reform-minded Merkel’s centre-right party a strong mandate in elections — but then backed off, forcing the new chancellor into a cumbersome coalition that diluted her plans.
The current focus is on Italy. Although the country is mired in economic stagnation and badly needs strong leadership, Prodi’s painfully slim election victory also means his coalition has little chance of enacting any significant economic overhaul. Observers fear that the Italian voters’ verdict is a recipe for paralysis in which factional infighting will likely take precedence over reform.
Many European business leaders, meanwhile, are tired of slow economic growth and are demanding their countries become more competitive. But many are fast giving up hope about the prospects for a transformation at home — and are seeking opportunities abroad. A delegation of top European executives warned EU finance ministers in Vienna last week that protectionism, lack of reforms and fears of globalisation were holding back Europe’s economies. Politicians must do a better job of explaining the high economic stakes if red tape was not cut and reforms not implemented swiftly especially in the labour sector, the CEOs said.
The business leaders also insisted that while they were investing abroad, revenues from their foreign ventures were being channelled back into Europe, thereby creating jobs. In fact, while governments and the public moan about the future, many French and German companies have managed to remain trim, efficient and world-class — even as the countries they call home go into decline.
While the European Commission has been calling for more economic liberalization, current disarray in France and a fragile government in Italy means it is unlikely to secure much support from those two countries. Germany, meanwhile, also remains cautious about revamping the labour market, with Merkel still holding back on unveiling a new employment blueprint.
Germany, which has the biggest economy in Europe, has been mired in virtual economic stagnation for the past five years with growth since 2002 averaging just 0.8 per cent. Unemployment is currently 12 per cent and most experts say growth rates of over two per cent are needed to create the millions of needed jobs.
The fear in Brussels is that with Italy, France and Germany in a reflective, uncertain mood, plans to give a new impetus to the EU’s political and economic future may also run into the ground. Given their weight and their status as EU founding members, the three countries have a strong voice in EU policymaking. If they obstruct reform and promote protectionism, the entire EU will suffer.
All is not lost, however. Popular support for Merkel remains high in Germany and many are hoping that it will be the reformist Nicolas Sarkozy, the current French interior minister, who will win next year’s French elections, replacing Chirac. And in Italy, few can deny that many voters heaved a sigh of relief after the outspoken and boastful Berlusconi — who had likened himself to Napoleon and Jesus Christ — was defeated.
Prodi, who cuts a more reassuring and comforting figure, has said he plans to bring back “harmony and unity” to a nation facing major economic and social difficulties. His political record is impressive. As Italian prime minister between 1996 and 1998, he defied widespread scepticism and stubbornly pressed ahead with unpopular policies aimed at allowing the country into Europe’s elite eurozone club. And during his five-year stint as president of the European Commission, between 1999 and 2004, Prodi strongly defended the EU’s eastward expansion programme and plans to turn Europe into a major political heavyweight.
EU watchers seeking a glimmer of hope say that contrary to current fears, Prodi, joined by Merkel and perhaps next year by France’s Sarkozy, will be able to revive the flagging European economy and boost European morale. But for many others, looking for a silver lining in Europe’s current dark cloud is proving to be a little difficult at the moment.


