The Challenges Facing Europe

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1 The Challenges Facing Europe Dr. Trisha Craig Executive Director Center for European Studies, Harvard University Remarks prepared for World Affairs Council of Pittsburgh, Summer Institute June 22, 2011

2 Trisha Craig, Center for European Studies, Harvard University Outline of remarks Continuing importance of Europe Challenges facing Europe Foreign Policy Economic Political Demographic Education Ways Europe may succeed better in facing some global challenges

3 Why Europe Matters US / EU trade relationship is the most important one in the world. Each is the other s largest trading partner. Europe imports over $400 billion of goods and services from the US US investment in EU is 3X higher than in all of Asia.

4 European Soft Power As Joseph Nye notes, Europe is very good at soft power Important particular in regime change: Sikorski Global aid: Europe is by far the largest player in development assistance worldwide. Sweden, Luxembourg, Norway, Netherlands and Denmark exceed UN target of 0.7% of GDP. At.17% of its GDP, the US trails all European countries except Greece.

5 Alternative Model of Advanced Industrial Democracies European model of a generous welfare state may seem neither feasible nor desirable to many Americans but they do highlight different choices in how to structure an advanced economy and what citizenship i entails. Greater social protections More family leave Universal health care Free or nearly free higher education Greater commitment to mass transit Trisha Craig, Center for European Studies, Harvard University

6 Challenges: Foreign Policy Transatlantic relationship Enduring partnership Under severe stress Relevence of NATO Strategic military alliance Underfunded by Europeans Secretary Gates farewell scolding Dim, dismal future Little US appetite or patience Lessons of Libya Insufficient i resources of Europeans Shift from defense/ deterrence to risk management w/o agreement on what constitutes the risk

7 Trisha Craig, Center for European Studies, Harvard University Challenges: Foreign Policy I d like to speak to Europe à qui je parle? Z kim mówię? Con quien hablo? Famous question of Henry Kissinger s: s: What # do I call when I want to speak to Europe? Lisbon Treaty in theory changed that. Baroness Ashton now the High Representative for Foreign and Security Policy Still, little coordination and multiplicity li it of national interests t that t aren t always the same

8 Challenges: Economic Issues Crisis in the Eurozone Euro introduced in 1995 as a currency and in circulation in Intended to solve transaction problems and further integrate the European economy Problem was that political considerations overshadowed economic ones

9 Challenges: Economic Issues Single monetary policy severely hurt the weaker European economies for multiple reasons One size fits all slows growth in some countries like Germany and overheats it in others property bubbles in Spain and Ireland Countries can no longer use currency devaluation or inflation to get out of the crisis PIIGS

10 Challenges: Economic Issues In many countries, severe austerity measures dramatic cuts to social services, decreased benefits, reduced pensions - are being called for. Unclear whether governments are capable of pushing through these reforms. Public unrest is growing. General strikes Violent protests Parties losing elections

11 Challenges: Economic Issues Anger is not limited to countries in need of a bailout. German voters in particular are against future assistance and think the original bailout was a mistake. Helped ensure major gains for populist True Finn party in April, endangering bailouts Highlights tensions between allies like France and Germany

12 Challenges: Politics Shift to the right, and sometimes the extreme right Tax issues: north south divide Issue of immigration and Islam and perceived threats to way of life and values May make further integration more difficult

13 The Democratic Deficit Why do Europeans feel so disconnected from Brussels? Does Brussels get it?

14 Challenges: Demographic Most of the world s slowest growing countries are European Declining birthrates have put a halt to population growth. Replacement rate = 2.1 The lowest low 1.3 Rapidly aging populations Dependency ratios mean severe strains on pensions and health care. Contrast with US

15 What does this mean for Europe In 1960 about 12.5% of world s population was European; today it s 7.2 and by 2050 projections suggest it will be 5% By 2050, 30 million people of working age will be gone and like elsewhere, Europeans will be living longer.

16 How did this happen? Most traditional countries have had the sharpest fall in fertility a paradox? Labor market issues Cultural issues Northern welfare state supports family policy Worst system partly accepts modern world female educational and job opportunities but keeps traditional mind-set Why is US an outlier? Both cultural l and labor market factors at play

17 Are there solutions? Solutions are only partial Immigration Political problems 60M in UK, 188M in FRG needed by 2050 Pro-natalist policies limited effectiveness Cash incentives Social policies that combine family and work Day care Parental leave

18 Challenges: Education As in US, much discussion of a crisis in higher education but with somewhat different contours. Financial crisis has meant drastic cuts to universities in a number of European states as well as introduction or raising of fees. Growth of league tables : Jiao Tong or Shanghai rankings has rattled Europe No continental t institutions in top 10 Only 4 in top 50 Increased political l importance China, Netherlands examples

19 Little incentive for change European universities are too often bureaucratic and politically run institutions with little pressure to reform Some changes are beginning to occur More competition Greater involvement and partnership with industry Aghion and Mas Collet Study: Budgets not approved by govt Competitive salaries Selective admission External competitive research $ Autonomy more impt than $

20 Despite particular challenges, Europe may have some advantages Health care Despite much greater spending as percentage of GDP, US lags behind Europe on most health indicators: about 16% versus 11-13% 13% Pensions Social Security on average provides 40% of working income; OECD average is 60% with some European countries much higher. List_of_countries_by_life_ex pectancy

21 Trisha Craig, Center for European Studies, Harvard University May be better adapted to environmental realities than US Higher g gas tax ($1 on average vs. $5/gal) mean fewer miles driven per person, less car ownership Public P transportation t ti more common and importantly, used by the middle class Often regulations are more environmentally conscious May be a different mentality

22 Trisha Craig, Center for European Studies, Harvard University GDP vs. QOL Starting from path breaking work of Amartya Sen, idea that income is not the best measure of well-being Some countries (and cities) are picking up on the idea of measuring happiness and quality of life Sen, Stieglitz,Fitoussi ireport Cameron in the UK What about European Quality of life?

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