It was always obvious that the crisis would put global economic multilateralism under pressure. But today’s roundup from Eurointelligence makes grim reading. Incredibly, the crisis seems to be threatening economic openness within the European Union itself, as a result of President Sarkozy’s comments on French car companies operating in eastern Europe.
I don’t believe that the future of the European project will depend on what happens in a couple of peripheral economies of marginal significance. Rather, it will depend on the answer to two fundamental questions. How much do the Germans really want the Single Currency? And how much do the French really want the Single Market?
While I remain optimistic, we are only a year into this crisis. By the time we are through with it, the answer could yet turn out to be: ‘not enough’.
5 replies on “It gets worse”
Do you take it as given that global economic multilateralism is a Good Thing? Its current minor difficulties might be seen as an opportunity for discussing whether it is. Perhaps citizens might trade some of their apparent wealth for more control and greater stability, which might mean more localism and might result in more resilience.
“Topolanek says Sarkozy’s protectionism was incredible, and if anyone wanted to block the ratification of the Lisbon Treaty, this would be the perfect occasion.” Heh. Of course, Ireland has known about French protectionism for decades, when Irish produce was blocked from entering through French ports.
Brian: I think it is helpful to distinguish between international trade and international capital flows. If we start blocking the former, and unravelling all the ties that bind together the real economies of the world, that will do immense damage all round, not just in the short run, but in the longer run as well. And one of the lessons of history is that the longer run consequences could be political as well as economic, which thought ought to sober up any aspiring protectionists out there.
Should the way that international capital markets function be changed? I would have thought so.
Kevin: I was contemplating reducing international trade (I mean, assuming I had found a magic wand or something), not just the flow of capital. I realise this is very much a minority interest, and I don’t want to distract attention from the excellent and most useful discussion amongst serious economists here (I have a degree in the subject, but it’s over thirty years old, so I struggle to keep up at times). But my main interest is in stopping uncontrollable global warming, and I can’t see how that is to be done at current levels of production. So the less oil that’s used, plastic that’s produced and so on, the better, and that means westerners must consume much, much less, and there must be much, much less travel and transport. A good depression might achieve that, although I would like the remaining income to be shared more equally. The payoff for citizens (apart from not frying) might be greater control and resilience. But perhaps it needs a Castro to manage the transition — which would be political, as you say.
Brian: I will defer to Richard Tol on this one.
I think the depression can cut both ways in terms of what you are concerned about. Yes, in the short run it reduces trade and carbon emissions. But, maybe collapsing fuel prices will induce people to hold off on the adjustments they need to make in the longer run. On the other hand, a logical thing to do with stimulus packages is to spend the money on energy-efficient transportation infrastructure, and cleaner energy sources.