Europe's disastrous decade

By just about every measure, Japan performed better during its lost decade than Europe has since the adoption of the euro in 2002.

As we know, Europe shuts down over August. One result of this is that both good and bad news, unless it is of an earthshaking nature, gets overlooked until after the holidays. That makes it a good time for others to step back and put Europes economic and financial (and as a result social and political) situation in some sort of perspective. One perspective that is often adopted is a comparison of Europe today with Japans so-called lost decade, from 1991 to 2001 (Japanese economic performance has not been much better since).

The lost decade in Japan was characterized by economic stagnation, with very low or slightly negative growth rates. Unlike Europe now, however, unemployment in Japan was low during this period, and although the total governmental debt rose almost alarmingly, it is almost all held domestically and denominated in yen, so that no debt crisis erupted. As a result, there has been nothing in Japan to compare with the demonstrations and riots in various Eurozone countries, along with the emergence of extreme leftist and rightist political parties. A recent study by Leto Market Insight, a Washington-area consulting firm, has brought to light several other differences between the Japanese experience and the European one, and the comparison does not favor Europe.

By just about every macro-economic measure, Japan performed better during its lost decade than Europe has during the period from the adoption of the euro currency in 2002, based on data from Eurostat, the European Central Bank, the OECD, and the Bank of Japan. Japan grew faster and improved productivity in general and industrial productivity faster during its lost decade than has Europe since 2002. Debt, on the other hand, as well as labor costs, grew faster in Europe. In short, if Japan suffered a lost decade, Europe since 2002 has been suffering a disastrous decade, much worse than its performance during the decade prior to the adoption of the euro.

There has been no European recovery from the Great Recession. Several European countries are back in negative figures and all, with the exception of Germany, are at best stagnant. The trendlines are also discouraging. Only the United Kingdom has recently shown a slight upward trend.

We can expect, as a result, hot autumn and winter seasons in Europe, where leadership is a lost art. At least in Japan, the election of Prime Minister Abe has brought into office someone with a plan that appears to make sense. How much good it will do remains to be seen, but at least Japan has a leader and a plan. Europe has neither

It is entirely unclear where the spark of recovery might come from. Internal demand is stagnant, and export demand is down, with slowdowns in China, India and Brazil, and slow growth in the United States.

That being the case, we can expect continued social and political unrest as austerity measures continue to push up unemployment figures and reduce social expenditures. The growth of extremist parties will continue, and the recent push to form a sort of extremist international may succeed in coordinating the activities of these parties across national borders.

These developments, along with the constantly increasing Islamic penetration of most of Europe, and the resulting backlash, should ensure that, with the exception of Germany, the future of the Eurozone is bleak.

The role and influence of Europe in world affairs will continue to decline, as it has been doing for some time now. Meaningful European participation in international policing or peace-keeping efforts is unlikely. Historians will likely view the NATO effort in Afghanistan and the coalition bombing of Libya as the last significant involvement of Europe in world affairs.

The emergence of Germany as the only significant Eurozone country that is in fairly good economic and even better financial condition, will have a lasting effect on the future geo-politics of Europe. It will also result in German domination of whatever financial structure emerges from the various European reform efforts. The fact of German dominance in European affairs, gives rise to certain considerations. Germany has, since WWII, understandably been domestically-oriented, with relatively little attention paid to the world outside the European Union. Germanys continued reasonably good economic performance, however, is dependent, as it has been for many years, on outside sources of energy, oil and gas. Thus, Russia can be expected to play a growing role in Europe, as well as in the Middle East, where it is attempting to fill the power vacuum left by the United States.

Israel will have to deal with this developing situation. The European export market for Israeli goods will not recover anytime in the foreseeable future. India, China and Brazil will continue to be good, if declining, markets. A continual effort needs to be made to open new markets and diversify export goods.

Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and a researcher at the Center for National Security Studies, University of Haifa.

Published by Globes [online], Israel business news - - on August 25, 2013

Copyright of Globes Publisher Itonut (1983) Ltd.

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