Expert: EU past economic troubles

By Ned Seaton

The European Union only looks like it’s in trouble; actually, it is already overcoming its problems and will become “much stronger” and “much more competitive” because of its recent troubles, according to an expert who spoke in Manhattan on Thursday.

Anders Aslund, a leading specialist on the economies of Eastern Europe, said that in the past year, Europe has taken major steps to make its survival much more likely. Among them: Giving power to the European Commission to enforce fiscal discipline among member nations; bailing out banks as necessary to prevent a collapse; allowing Greece to default on its debt but not kicking it out of the Euro Zone, and establishing a permanent bailout fund. These steps sent the message that no country will collapse or be kicked out the Euro Zone, Aslund said.

Prior to those changes, countries such as Greece had always violated the rules about budget deficits and public debt in the Euro Zone, he said. Even the largest countries —Germany, Italy and France —eventually violated them, and so the Euro crisis really came as no surprise, he said. That crisis, which hit first in Greece in May, 2010, is what eventually forced the changes.

Now, he said the consequences of breaking the rules are “sufficiently severe” that the system should work. He also said that although the severity of the reforms required has resulted in internal political problems in some countries, those are being overcome – pointing out that Greece couldn’t form a government last spring because of “too many extremists,” but that now the country has done so “and is doing much of the structural reforms needed.”

Aslund, who served as a Swedish diplomat in Moscow, Geneva and Kuwait and is currently a senior fellow at the Peterson Institute for International Economics, said that the countries of Northern and Eastern Europe went through a wave of reform in the 1980s and 1990s that made them much more competitive.

He noted that corporate tax rates there are lower than in the U.S.

Economies such as Greece and Spain will “have to go forward” with similar reforms now.

Meanwhile, there’s real momentum toward a free-trade agreement between the U.S. and Europe, Aslund said. That’s partly out of a sense in Europe of weakness, particularly relative to China, and so Europe is more willing to make concessions.

One big remaining question: Which way England will go? There’s currently a question of whether England will remain in the European Union or will decide to leave; Aslund said that discussion indicates that “Great Britain is out to lunch” and may even face a breakup with Scotland and Northern Ireland if it chooses to try to leave the EU. Aslund said he didn’t know which way that question would be resolved. “It’s just a question of how much Great Britain wants to make itself irrelevant.”

He said a U.S. assistant secretary of state recently made clear in a speech in London that if Britain chooses to break off from the EU, that “there won’t be any more special relationship with the U.S. The U.S. will look to Brussels rather than London.”

Aslund characterized that stance as positive, but said he wasn’t sure how fully it was supported in Washington.

Aslund spoke Thursday in what’s called the Political, Diplomatic and Military Lecture Series, which is coordinated by Kansas State University Political Science Prof. Dale Herspring.

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