Europe doesn't need to grovel

SCMP November 13 2011

To experience a continent in a state of funk, try attending a conference on China in Europe, as I did in Spain this past week. It was amazing to learn a week earlier that French President Nicolas Sarkozy had been imploring President Hu Jintao to invest some of China's surplus in the euro- zone rescue fund. France, that most self-consciously proud of all the major European nations, was humiliating itself for no good reason and yet Sarkozy was not being criticised much. How could this be?

After two days of hearing Europeans talk about China, it became clear why Sarkozy spoke as he did and why few objected to his grovelling. They alternately flagellated themselves while expressing awe at everything Chinese, from its rate of growth to the superior governance provided by the Communist Party's wise rule, the business genius of its new billionaires, via assumptions that, either by virtue of genes or the inheritance of Confucian values, Chinese were superior people.

Two things seem to be at work in Europe. Firstly, there is a simple lack of knowledge. The euro area does not need Chinese, Russian or anyone else's money to support a system weakened by the debt problems of some member governments. It simply needs the resolve of the stronger members to support the weak.

Many Europeans believe that they are already in debt to China and need to ask for more, despite the fact that the euro area remains in overall external balance and most of the bonds of its weaker members are held within the region. In reality, China needs Europe, its biggest market and source of a large trade surplus, more than the euro zone needs it.

Secondly, the euro zone tail is being allowed to wag the dog. The top news everywhere is the latest twist in the Greek tragi-comedy, closely followed by the latest antics of Silvio Berlusconi.

For sure, these are embarrassments, but they would be no more than that but for the zone's inability in the past to enforce fiscal discipline and its current inability to persuade the richer members to pay up for others' past misdeeds. The price for saving the euro will be high, perhaps too high in a world run by dithering politicians and leveraged currency traders.

A collapse in self-esteem can only have negative consequences for the continent's economy and result in more preaching about the virtues of austerity, when that will only make matters worse and create the social divisions that have long been kept at bay by welfare policies.

What seems to be forgotten by a Europe obsessing about these ills is that its economic and social performance on a per capita basis is arguably better than those of the US and Japan, the only comparable mature developed countries. Several EU members lead the developed world in numerous technologies, in environmental protection, in sustainable fertility rates, and in maintaining welfare systems which achieve social cohesion by redistributing income without bankrupting governments.

The self-flagellating Europeans choose to assume that China's rapid growth will go on and on, regardless of global events, its internal distortions, the mess that is China's non-bank financial system, its hidden fiscal problems, ever widening wealth gap, appalling disparities in access to education and health care - let alone provision for the forthcoming steep rise in the number of elderly people, its problems in enforcing environmental laws, and so on.

Indeed, there is so much that China can learn from Europe. China knows that; Europe does not. Likewise, Europeans now assume that China's rise to the top of the world in innovation as well as sheer economic size is not a question of 'if' but 'by when'. Yet years of rapid growth has only got it to roughly Thailand's level.

They forget the histories of regions that grew very fast for a while, then slowed dramatically - the Soviet Union in the 1950s, Brazil in the 1960s, Southeast Asia in the 1980s/90s, for example. They forget the role that welfare has played in Europe for well over 100 years - it started in Germany early in its industrialisation. They even believe that having a huge pile of foreign exchange reserves yielding very little is a sign of good economics. Yes, China may move onto the top tier of income and innovation sometime in the next 40 years. But that's no more a sure thing than gold going to US$3,000 by the end of this year.

Japanese are also in a funk because of the mess of their politics - though not to the same extent as Europe. They expend their energy trying to keep foreign money out rather than expect foreigners to fund their government deficit. For all its demography-driven economic stagnation, Japan's social cohesion, though a little eroded, remains remarkable.

Indeed, like Taiwan and South Korea, its income distribution and commitment to good education for all has long made it look like the best in Europe, or better. China looks like Brazil. Where, too, in China is the trust in institutions, in non-personal relations, and in the pursuit of communal goals which lies behind all countries that reach the top?

China has less than 30 years before its median age is as high as western Europe's. For sure, Japan and Europe have immediate problems of debt, political decision- making, welfare reform and the like. But unless China learns many lessons from them soon, its star could fade as quickly as that of the Soviet Union, once expected to be the equal of the US by 1970.

 

ends