Shortly before the outbreak of the Crimean War, in 1853 Tsar Nicholas I of Russia reputedly referred to the declining Ottoman Empire as “the sick man of Europe.” It certainly seemed so to every other European observer; an increasingly foreign-dominated economy, a hideously corrupt bureaucracy, an ever-shrinking territory and a series of disastrous wars were very visible symptoms of an underlying terminal illness.
Since then, whenever a European country falls upon excruciatingly hard times, journalists and politicians are quick to apply the label “the sick man of Europe.” But it would be best if it were used in the plural, as there is not only one sick man, but three: France, Italy and Russia, the first two of which will be covered this week and the latter next week.
France represents the most interesting case. Topping its bestsellers lists for years now have been books in the new genre known as “declinism.” Declinism is the moniker given by the French themselves to the general pessimism and melancholia that pervades French life as of late. Whole sections of French bookstores are dedicated to books lamenting the fall in French prestige and influence in the international arena, the destructive dichotomy between the French political and business elite and the increasingly suffering middle and lower classes, and the sluggish (at best) economy with a growth rate hovering around 1.5 percent and unemployment stubbornly stuck at 8 percent, or even 20 percent among 20-something youths.
And it is all true. Unwilling or unable to muster the political will to push through hard changes, the elite are throwing their hands up in surrender, a curiously familiar French gesture. The people themselves, especially the younger generations, are irrationally lashing out at everything that displeases them. The older generations of French have held lifetime jobs, mostly with the state but also in the private sector, secure thanks to the unbelievable regulations that force employers to give huge benefit packages to employees and that, in practice, prevent firms from firing anyone. This translates into a near moratorium on companies hiring anyone for fear of having to go through the years-long process of firing them.
In polls, the youth, knowing that these lifetime jobs are quickly disappearing due to globalization and competitive pressure from abroad, consistently say they want a leaner, more flexible, more globally competitive economy. But when political leaders attempt to institute changes to make it so, including the gradual dismantling of the French welfare state, the people hold rallies of hundreds of thousands of people to vehemently protest the legislation, after which it is quickly withdrawn.
It leads one to wonder if the French enjoy such an extreme degree of self-loathing or if they particularly like staring at one another, Gallic shrugs all around, saying “C’est la vie.”
Another diseased member of the European community is Italy. Italy, the land of superb food and fast Ferraris, home to a people with an unmatched joie de vivre, is in fact miring in its own economic and political quagmire. In some ways the situation is much the same as in France: over-regulated labor and product markets, unwillingness to reform them and economic nationalism that translates into hostility against foreign economic involvement.
But there are also uniquely Italian problems that make the situation worse: an economy largely based upon small manufacturing firms whose products are quickly being supplanted by foreign goods and a political situation that holds only bad news for the future.
Italy experienced an economic revival in the 1950s and 1960s that created an economy dependent upon cost-competitive manufacturing firms, for the most part producing textiles, furniture, machine-tools, food-processing and white goods. These areas are highly susceptible to pressure from foreign firms operating in Eastern Europe and China. Italian workers enjoy many of the same protections and rights as their French and German counterparts, resulting in high costs to companies; Eastern European and Chinese firms, on the other hand, have an unbeatably low cost-base combined with fairly unregulated labor markets.
Another strike against Italy is its adoption of the Euro common currency. Italy’s economy is highly export-driven, so success for the manufacturing firms has in the past depended on a weak currency. Whenever inflation was high, the government would simply devalue the lira. With the Euro, that option is no longer available.
With Romano Prodi, a center-leftist, in power after ousting Silvio Berlusconi, a center-right businessman-turned-politician, prospects for reform look even dimmer. A dedicated socialist, Prodi will not undertake the market reforms necessary to revive the Italian economy or revitalize its competitiveness. In late February of this year, Prodi’s government faced a vote of no confidence, a vote he barely won; his coalition government of far-left communists, center-left democrats and a few center-right politicians is not expected to last the full five year term.
Of the Big Three European powers, France, Italy and Germany, only Germany shows any economic strength, if Angela Merkel’s grand coalition holds together. As of now, these three countries represent 70 percent of the EU’s GDP, but with the addition of low-cost Eastern European nations and the continued political and economic stagnation of France and Italy, that figure is sure to shrink.
About the writer:
John Jose is a first-year finance, economics, and international studies major. He can be reached at [email protected].
