Wednesday, January 27, 2010

WSJ: EU Sees Dreams of Power Wane as 'G-2' Rises

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As expected the Fed announcement is a non event, and as long as Apple (AAPL) keeps announcing new products every 3-6 months, the US economy is alive and kicking.  Carry on...

The next decade will be very interesting for the European Union as certain member states (Greece, Italy, Portugal, Ireland, Spain) struggle under mighty debt loads.  How the richer members - namely France & Germany - deal with potential sovereign debt defaults by weaker nations will be compelling theater especially since they are now bounded by a common currency.  Hence, unlike what other countries try to do (that is devalue their currency to reduce their effective debt load) - the debt loaded EU countries don't have that "out".  Demographics also are not working in most of Europe's favor; [Nov 13, 2009: Sao Paolo, Mumbai, Shanghai to Join New York, London, Paris as World's Dominant Cities by 2025] frankly the debt laden portions of the EU look like Japan 15 years ago at this point.

Via WSJ:
  • This year, the 27-nation European Union was supposed to come of age as an actor on the world stage, bolstered by the Lisbon Treaty, which streamlines the EU's cumbersome institutions. Instead, Europe is starting to look like the loser in a new geopolitical order dominated by the U.S. and emerging powers led by China.   When the world's policy and economic elite gather Wednesday in Davos, Switzerland, for the annual World Economic Forum, much of the talk will be about the rise of a "G-2" world where the U.S. and China are the most important players.
  • When the world's policy and economic elite gather Wednesday in Davos, Switzerland, for the annual World Economic Forum, much of the talk will be about the rise of a "G-2" world where the U.S. and China are the most important players.
  • Europe, of course, remains a major global player. Its $16 trillion economy accounts for 28% of global output, more than the U.S. The EU's integrated consumer market is the top destination for Chinese goods. Its industrial engine, Germany, remains the world's fourth-largest national economy and exports nearly as much merchandise as China.
  • Britain and France can still deploy significant military power abroad, and have permanent U.N. Security Council seats. Europeans are well represented in global institutions and committees, including the International Monetary Fund and the Financial Stability Forum, where EU officials are influential in negotiating new banking rules.
  • Europe also has "soft power," in its ability to attract and co-opt others by offering EU membership to neighbors, and in representing a model of welfare capitalism to people around the world who dislike the more-individualistic American version.
  • The EU suffered a deeper economic contraction than the U.S. in 2009, even though the U.S. was the epicenter of the economic crisis. It faces a slower recovery thanks partly to onerous public debt in many countries.
  • Europe's longer-term economic prospects are dimming: Ageing and, in some countries, shrinking populations will compound budget strains, while a growing retiree vote could entrench resistance to economic overhauls.
  • Europe's strong representation in international forums is under fire. Critics from developing countries say Europeans still have too many votes at the IMF and U.N. Security Council, reflecting post-World War II reality rather than today's.
  • Many Europeans have long dreamt of a multipolar world, in which diplomacy and international law replace American dominance and military muscle-flexing. But EU-style soft power is turning out to be less useful than expected in dealing with China and other rising powers.
  • "China and Russia see the world in totally realist, zero-sum terms," says Mr. Grant, adding: "If we want China to take us seriously we have to have hard power," or the ability to twist arms through economic, military or other means.  The EU is inherently unsuited to wielding hard power "because it is not a state,"
  • EU members such as Germany, Britain and France retain their own foreign and security policies, which are often at cross purposes, analysts say. China and Russia have each exploited such divisions to play off EU members against each other on issues such as human rights and energy supplies.

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