Europe in Permanent Decline

Europe was once the cradle of industrialization, freedom and prosperity. But since then they have indulged themselves in a highly irresponsible, short-sighted and long-term destructive entitlement mentality. That mentality, which was elevated to official state policy in the form of the welfare state, is now bringing country after country across Europe to its fiscal knees. The forces that built Europe into the world’s second wealthiest continent – only North America surpasses the Old World – have been brought to a virtual standstill by the relentlessly increasing burden of entitlements.

Among the victims of this entitlement mentality is the classic Western entrepreneurial spirit. For two generations now, Europeans have grown up to believing that government will serve them their basic needs for the rest of their lives. All they had to do, they were told (by teachers, parents, political leaders) was to find a nice little job somewhere, spend 37.5 hours per week in the office, take five, even six weeks of vacation every year, and wait for their comfortable retirement.

In reality, that worked for one generation. After that, the loss of the entrepreneurial spirit began withering away. The private sector, dominated by increasingly dinosauric, overwhelmingly bureaucratic corporations wa no longer challenged to renew itself. As each new generation of entrepreneurs grew smaller and smaller, the private sector became less and less productive.

The tax base stopped growing. But the welfare state did not. The result: an emerging economic wasteland, sinking into a permanent state of industrial poverty.

This full-blown picture has not dawned on the Europeans. Not yet. But they are beginning to see glimpses of it. Take, e.g., this story from Euractiv.com:

After a year of closures, sackings and cut-backs, arguments about how to turn European industry around will be to the fore this year as debate intensifies around the correct policy response, and doubts linger over the EU’s ability to deliver. A fall in the demand for steel of 8% during 2012 saw permanent closures of furnaces across Northern Europe, whilst others were mothballed in an attempt to stave off further closures.

This decline comes after about five years of recession. If Europe could recover from this, they would have done so already. I am increasingly convinced that this is a permanent decline, from which the continent – as it is politically organized today – simply will not recover.

European steelmakers have written down major investments as the supply of steel and nonferrous metals products continues to outweigh demand, reflected in results for key steel-users such as the automobile sector. French carmaker Renault’s decision on 15 January to cut 7,500 French jobs by 2016, followed similar announcements affecting the European operations of Fiat, Ford, General Motors, Opel and Peugeot.

And, again, this comes on top of the past few years of decline:

Between 2008 and 2012, 6.8 million jobs in construction and industry were lost across the EU, according to BusinessEurope, the group representing the member states’ largest business federations. “The severity of the crisis is producing a painful hangover,” said the group’s director-general, Markus Beyrer.

Then, of course, big brother government has to come to the rescue:

Antonio Tajani, European commissioner for industry, in October acknowledged “we’ve made mistakes in the past, we’ve let industry and SMEs fend for themselves for too long,” as he presented a review and re-launch of the Commission’s ‘Integrated Industrial Policy for the Globalisation Era’, first launched in 2010. Tajani declared the aim to raise industrial activity to 20% of EU gross domestic product by 2020, compared to 16% today, taking it back up to pre-crisis levels.

Another glorious pie-in-the-sky political proclamation that surely will help bring billions of jobs back in Europe. Absolutely. No doubt. For sure.

Fact of the matter is that government is the big, fat problem that brought Europe down to  its knees. But as the Euractiv.com story explains, the last people on Earth to realize that are the Eurocrats who live high on the hog off the backs of Europe’s struggling taxpayers:

The strategy sets out six priorities for short-term action: advanced manufacturing technologies, key enabling technologies, bio-based products, construction and raw materials, clean vehicles, and smart grids. This approach was subsequently endorsed by the European Parliament and Council, responding in part to growing disquiet in the member states that the EU has paid a lot of attention to austerity, but made little effort to open markets to stimulate investment and growth.

Of course these politicians know better than the private industry what the private industry can do best. After all, these politicians are lawyers, or they have a degree in public administration. Some of them have worked for their political parties all their lives; others have held jobs in some tax-paid bureaucracy somewhere, waiting loyally for their party bosses to put them high enough on a ballot list to get elected.

Their experience in pushing a “yes” or “no” button (or, in the case of the current American president, the “present” button) definitely qualifies them for deciding what private enterprises should and should not be doing.

Definitely. Absolutely. No doubt.

Some, of course, simply refuse to see the long-term trend at work in Europe. Euractiv.com again:

“The picture is not as bleak as some of the stark figures suggest,” said the European Policy Centre’s (EPC) chief economist Fabian Zuleeg. Zuleeg says that even in the automobile sector, where the headlines appear most bleak, there remain many high-technology automobile-related industries providing much in-demand industry in Europe. “The plain problem is that there has been over-supply in that sector, and a re-modelling of the sector towards high-skilled factories – where the EU can compete – is necessary,” he adds.

Once again, we have to go back to good old Lord Keynes to understand the true nature of the problem. The EU economy, taken as a whole, has basically not grown at all over the past five years. Sizable portions of it are in fact smaller today than they were in 2009. Taxes have gone up, either directly or indirectly as a share of cost of living for most Europeans. The persistently uncertain outlook on the job market is holding back whatever spending consumers can still muster.

So long as the EU and the ECB continue to try to save death-bed tied welfare states across Europe by means of austerity, there is absolutely no chance that the European economy will recover. But even if they chose the “French” route and combined higher taxes with more government spending (where austerity combines higher taxes with less spending) the long-term outlook would not change. The underlying problem remains, namely that government keeps draining the private sector for resources that it desperately needs to produce jobs and prosperity.

Given the stubbornness with which the Eurocracy holds on to its austerity policies, the current political landscape cannot save Europe from going over the industrial poverty cliff.

Furthermore, so long as the Europeans continue to dwell in their entitlement mentality they will not recover from their decline. The more they sit around and expect others to fill their fridges and pay for their retirement, the more they will wait in vain.

Europe’s only chance is to end the welfare state and transition into a free-market based economy. Austerity won’t let that happen. Only a structural retreat from big government can do the trick.