Radnor Inc

Radnor Geopolitical Report

Paris, April 2007



Strategic geopolitical intelligence for decision-makers





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Euro-funk at 50

by Ken Feltman

Europe is a union of diversity.

- Jean-Pierre Raffarin, French prime minister, May 2002-May 2005

Some years ago, a young Austrian woman asked me a question. She began by saying that she and her fellow Austrians knew they were Austrians because most of them shared the same history, culture, ethnicity, language and religion. They shared the same cuisine and the same lifestyle. That made them Austrian. She wondered, in a multi-ethnic, diverse country such as the United States, what bound us together as Americans?

I answered: A shared vision.

The European Union celebrated its 50th birthday a few weeks ago. Despite a splendid 50 years of peace and economic progress, Europeans view their future tentatively and with ambivalence. Despite their obvious progress, the 27 member nations of the European Union do not share a common vision, and, therefore, seem to be drawing away from each other at just the moment when success seems assured.

This has been a most remarkable 50 years. Jean Monnet?s vision began as the European Coal and Steel Community and included France, West Germany, Italy and the Benelux countries. It has succeeded even beyond his expansive dreams. A Frenchman, Monnet believed that the key to stabilizing Europe and ending aggression was to link France and Germany and then draw in other European nations in economic and, eventually, in governmental cooperation. Today, the European parliament, the spread of democratic governments eastward and the vibrant Euro stand as evidence of his vision?s fulfillment.

Success is not without problems. Today, the EU faces three major and related problems.

Louis-Lyonel Voiron and Cassandra Somasundaram of Radnor's London office compiled and analyzed research for this report.

First, what about the Constitution? The Constitution?s future may have been decided forever two years ago when first France and then the Netherlands refused to accept the cumbersome document. German Prime Minister Merkel hoped to use the 50th anniversary celebration last month to kick-start the Constitution. Any new or revised treaty would need to be ratified by all 27 members of the EU - and if France and the Netherlands have already said no, compounded by a skittish United Kingdom hoping not to have to vote because the vote would likely be no - approval seems remote. But does Europe need the Constitution? Things seem to be moving ahead without one. Beside, time spent on the draft Constitution is time not spent on Europe?s two other great problems: Revitalizing the economies of the member states and resolving the immigration crises affecting most states.

The EU?s biggest failure has been in trade regulations. Despite the dramatic success of the Euro, the EU has failed to eliminate or reduce the trade barriers that individual nations have crafted to prevent their favored economic interest groups from being forced to compete in a European-wide marketplace. Thus, French farmers receive subsidies and British farmers receive subsides and on and on. This tendency by European nations to wish to keep the general rules from affecting their country while applying the rules to other countries is more understandable when looked at from the historical precedent of mercantilism, which traces its roots all the way back to the Hanseatic League, founded in the 13th century.

The static pie

Briefly, and too simplistically, the theories of mercantilism strictly applied hold that an economy?s productivity is a zero-sum game. The pie does not get larger. If one person eats a piece, no other person can have that piece. This seems very logical and all school children understand and practice the theory. The state controls trade and sees to it that a positive balance of trade is maintained, even when that requires the establishment and exploitation of colonies. The key is to create a positive balance of trade for the home country, which in turn requires that other countries must make up the difference in bullion or debt.

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The ideas of Adam Smith, which began to take root in both Europe and especially in the United States beginning in the late 18th century, hold that an economy can expand as efficiencies in engineering, production and merchandising are translated into the economy. Therefore, the pie can get bigger. It is no surprise that the British colonies in North America found Smith?s ideas more pleasing than mercantilism.

This philosophy that the pie is only so big is a surprisingly common economic philosophy even today. It underlies the economy of China and has heavily influenced Japan. In fact, both liberal and conservative American economists have espoused theories based in part upon the static concept, including several today.

Now we take these notions about economics and we add a dash of political theory. Surprise! As revealed by Radnor?s Decision-Maker Research, the static pie philosophy is common among individual citizens of most European countries. They express their concerns about their own national economies as a pie with only so many pieces. Asked why they are pessimistic about their country?s future, Europeans from the Mediterranean to the Baltic often express the fear that certain segments of the population will get more than their fair share, jeopardizing the shares of other citizens.

Try to find a country with a better economy or better prospects than Sweden. You may argue that you could find next-door neighbors Finland or Norway with its petroleum. These are good times in Scandinavia. But in the election last September, Swedish voters expressed concern than the good times might not last.

The ever-growing pie

When the same questions are asked of Americans and Canadians, a very different response is heard. The North Americans almost universally believe that the pie will get bigger and that everyone will have more tomorrow so long as they keep working toward that goal. Even immigrants - including an overwhelming number of illegal immigrants - believe that the pie is getting bigger. That fact may explain why so many illegal immigrants want to get to the U.S. and Canada.

So the Euro-malaise may be based upon economic theories developed centuries ago that are not supported by modern theories of technology and productivity growth. But the theories of the static pie are rooted in socialism and in the dogma of many Social Democratic parties in Europe. Could it be that these ideas are somehow now imbedded in the minds of millions of Europeans?

The second great task for European politicians is to resolve the crisis over immigrants and their rights and obligations within the EU and their host countries. Obviously, this is a most difficult problem. The United States and other Western nations have not solved this problem. But the crisis seems to be boiling in Europe while simmering elsewhere.

Radnor's Louis-Lyonel Voiron predicted on April 13 that anti-immigrant candidate Jean-Marie Le Pen will again surprise the pollsters and will gather more votes than predicted, taking votes primarily from the Center-Right's Nicolas Sarkozy, who will under-perform the polls but still make the run off.

Socialist Ségolène Royal, with a boost from the immigrant banlieues, will finish with a larger share than predicted and Centrist François Bayrou will fade as voters realize he will not make the run off. Sarkozy will be favored to win the run off and become president.

All in all, the typical European will tell you that the politicians seem to believe that the best thing to do is to work on a document - the Constitution - while the citizens want to get busy with their new mobility and improved prospects. When they think about the Constitution, they think it is too complex and too bureaucratic. Europe?s citizens want economic benefits from the EU. This is a natural enough feeling. But the bureaucrats seem tone deaf as they tinker with language that they hope the French and Dutch voters might support.

Amidst this disconnect between the concerns of the citizens and the concerns of the political class is Europe?s greatest success: the European Union has spread democracy throughout its region, expanding the number of democratic governments in a way that is unprecedented in history, anywhere. If the Europeans need anything to feel good about, they should compare their successes and occasional failures (the Balkans are a prime example) with the success of the United States in its geographic region. Everywhere in Latin America, instead of new democratic governments spreading, the United States faces more and more hostility from its neighbors. Europe has included its fractious neighbors in its great experiment; America has failed to do so.

That is the great lesson - and the great hope - for Europe and perhaps for the rest of the world.

Jimmy Carter's malaise

A friend who grew up in Germany and now lives in Pennsylvania tells me that she thinks it is just the European way to be cautious and pessimistic and the American way to be optimistic. Maybe so. European voters tend to be suspicious of candidates who fail to display a serious, even somber mood.

On the other hand, when U.S. President Jimmy Carter first spoke of America's malaise in the wake of the hostage crisis in Iran in 1979, some public opinion polls showed that Americans felt no such malaise and concluded that it was Carter, not they, who suffered from malaise. The voters ousted Carter in the next election.

Look at Europe: Who would have believed that 27 disparate countries, many founded firmly on ethnic roots, could expand so quickly and show such great promise? Are Europeans expecting too much, too soon? After all, the people of the United States did not begin to say 'the United States is' instead of 'the United States are' until after the Civil War.

Politics is the art of the possible. Perfection is the enemy of the possible.

Who would believe that Europeans are now pessimistic despite such success? Faced with so much success in so short a time, perhaps only a European could be pessimistic.

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