Europe’s Crisis of Confidence

Old Europe is in something of an identity crisis. The specter of European federalism coupled with a widespread unease about Muslim immigration has many Europeans wondering about their nationhood and what it means to be “European” anyway. The financial meltdown and subsequent recession further fractured an already fragile self-image.

Foreign immigration and decades of post-colonial guilt and self-delusion in the name of cultural relativism cast doubt upon European values of equality. It is not-done to speak of Western civilization as superior today for there is supposedly no objective standard according to which cultures may be judged. Not everyone agrees which unfortunately leaves the great political divide in many parts of Europe between the cosmopolitan left that threatens to undermine the very foundations of Western prosperity and the nationalists on the right who speak of Western tradition to justify their fears of the future and the unknown.

The economic downturn has shaken Europe’s welfare states to the core meanwhile, forcing governments all over the continent to severely cut on social security programs. Poverty is on the rise while decades of government caretaking have undermined peoples’ sense of personal responsibility.

Jean-Paul Delevoye, France’s national ombudsman, is weary of people who think of themselves not as citizens but increasingly as consumers of the state. France, he said in mid-February, “is a fragmenting society, where an attitude of everybody-out-for-themselves is replacing the desire to live together.”

Although the country is the most socialist of EU member states with individual liberties greatly curtailed by the pervasive presence of the state in nearly all economic activity, the French people, apparently, still refuse to sympathize with state-imposed solidarity. Instead, massive government expenditures and welfare spending have given rise to an entitlement mentality with people expecting the government to address any perceived ill in their lives or in society at large.

Such a situation, according to German Foreign Minister Guide Westerwelle, is unsustainable. “Whoever promises the people the good life without effort,” he warned, “is making an invitation to late-Roman decadence.”

Unfortunately, in many countries, policymakers remain convinced that the solution is just a little more government control. In spite of mounting deficits and rampant unemployment, Spain insists on continuing to flirt with socialism. In Greece, Italy, Ireland and Portugal, the state has gone on spending well beyond its means in spite of the financial crisis, leaving all of Europe to worry about record debts. But in France, President Nicholas Sarkozy blissfully attacks what he calls the “freewheeling Anglo-Saxon” model of recent years. He hopes to demonstrate the success of the European approach which, according to Sarkozy, “has nothing to do with the excesses of financial capitalism.”

Oh, good.

Capitalism, in fact, is at the heart of European culture. It was capitalism that elevated parts of the continent from centuries of backwardness and depravity to allow growth and progress to take shape. It was capitalism, with its emphasis on individual accomplishment, freedom of enterprise and the protection of property rights, that gave rise to an age of abundance of wealth and wellbeing.

Notions of racial superiority unfortunately took hold of Europe as it established itself as the dominant force on Earth. In more recent years, such bigotry has been proven false but with it, too often, the very values that made Europe supreme are denied as well.

Left on the Rise in France

The Parti socialiste won France’s second round of regional elections conclusively this Sunday, gathering over half the votes nationwide while President Nicolas Sarkozy’s conservatives trailed in second place with just a third of the electorate.

The socialists already controlled twenty out of France’s 22 departments in Europe, gaining the island of Corsica this weekend. The major parties equally split the four overseas regions.

Following their defeat in the 2007 election, the socialists were ruptured for years with internal power struggle. Former presidential candidate Ségolène Royal had to make way for the Parisian Martine Aubry last year in an extremely close election that saw Aubry lead with just over a hundred votes.

Aubry is the daughter of former European Commission chairman Jacques Delors and previously served as labor minister when she championed the 35-hour workweek. She is expected to run against Sarkozy in the country’s upcoming presidential election of 2012.

Although the government previously insisted that the elections would bear no consequences nationally, rumors of a cabinet shakeup being in the works began circulating in Paris right after the outcome of the election became known. Prime Minister François Fillon accepted defeat and declared that his party has to listen to the voters.

In the wake of the financial meltdown, President Sarkozy has shown himself increasingly leftish on the economic front, blaming the “freewheeling” Anglo-Saxon mode of enterprise while leading the fight for greater European and global regulation of the financial industry.

At the same time, France has to make unpopular cutbacks. Sarkozy’s government is likely to cut on entitlement spending and it intends to raise the retirement age. Labor unions and farmers are already gearing up to protest against the measures, foreboding months of uproar in a country that simply can’t afford to maintain its massive and pervasive welfare state for much longer.

Sarkozy Bids Farewell to Capitalism

Government intervention in the economy is something of a tradition in France. As the the 2010 Index of Economic Freedom published by the Washington-based Heritage Foundation and The Wall Street Journal noted, French business “remains curtailed by the pervasive presence of the state in economic activity.” Government spends more than half of GDP and owns or controls many major industries. Taxes are high and so is the state’s expenditure. Indeed, few states spend more than France.

Since the recession struck, President Nicolas Sarkozy, although the foreman of France’s political right, has shown little love for free-market capitalism. He previously blamed the “freewheeling Anglo-Saxon” model of finance for today’s trouble and announced “the victory of the European model.” Sarkonomics have been disappointing for aficionados of the market.

“If there was any remaining doubt that the era of financial capitalism is over and the age of big government has begun,” writes Rana Foroohar for Newsweek, “Sarkozy dispelled it” with his keynote address to the World Economic Forum in Davos, Switzerland last Wednesday. He “seemed to delight in bashing everything from laissez-faire capitalism to overblown banker pay,” according to Foroohar, and he complained that “nothing has gone to labor” during the past years. In Sarkozy’s words, “Capitalism is not an end — it should be a means to an end.” What end? Sarkozy didn’t say.

This sort of vague persecution of capitalism is unfortunate when it is practiced by opinion makers. Coming from a world leader, it is dangerous.

Sarkozy never explains how exactly capitalism failed besides pointing at high bonuses and blaming the short term vision of bankers. He never provides a viable alternative besides promising to “do something” for “labor”. Yet he has enacted greater protectionism of French industry and proposed greater oversight of the financial sector, all intended to curtail capitalism, not do away with it altogether, of course.

The truth is that by curtailing capitalism, it seizes to function. Financial markets have been subject to regulation for years. Their failure is interpreted as proof that more oversight is necessary but more of the same won’t do any good. Punishing banks won’t work.

Economic Freedom in 2010

Empire State Building New York
The Empire State Building in Manhattan, New York (Unsplash/Gaurav Pikale)

As the global recession took hold of the world last year, free-market capitalism increasingly came under persecution. Much of the industrialized world accepted an expansion of government power over the economy in the form of greater oversight, tightening financial regulation and sharper labor laws. Taxes went on the rise consequently, targeting especially the supposed perpetrators of the meltdown: bankers and big business, although they were hardly to blame for the situation.

The 2010 Index of Economic Freedom published by the Washington-based Heritage Foundation and The Wall Street Journal reflects these changes as countries formerly steeped in the free-market tradition have fallen on the scale, the Netherlands, the United Kingdom and the United States foremost among them. Read more “Economic Freedom in 2010”

Capitalism Under Persecution

Although banks are not exclusively to blame for the financial meltdown and subsequent recession, it has become popular practice in both media and government to ascribe all of today’s economic woes to supposed greed and irrationality on Wall Street. The chairman of the American Federal Reserve, Ben Bernanke was only the latest in a series of officials to call for greater supervision and regulation of the banking sector. Indeed, it has become one of the outspoken goals of the Obama Administration as well as recent G20 summits.

As rumors persist that the White House is to propose legislation that will impose a fee on international transactions, echoing a suggestion offered by the European Union last December, banks worry.

Goldman Sachs recently came under fire as it turned out bonuses to its employeed once again. How dared they, journalists and politicians cried alike, though the company had repaid the United States Treasury’s $10 billion TARP investment in June of last year already — with 23 percent interest.

Nevertheless, Goldman Sachs is now considering to force its executives and top managers to give up part of their earnings each year — to charity. As The New York Times reports, the details of the charity initiative are still under discussion while the firm is “trying to understand whether such gestures would damp public anger over pay.”

Whatever one may think of demanding that employees donate part of their income possibly against their choice, the mere fact that Goldman Sachs is contemplating such a policy is telling of the economic climate in which it has to operate.

Things may be even worse across the Atlantic. In the United Kingdom, the Labour government is bashing the rich with an extra tax on bonuses while in France, President Nicolas Sarkozy explicitly distanced himself from what he called the “excesses of financial capitalism.” Although his government can’t seem to solve a 8.5 percent deficit on its budget, Sarkozy relishes in “the victory of the European model.”

Increasingly, in the popular press and in the words of lawmakers, it is not quite capitalism itself that is condemned. Rather its “excesses” are blamed for all of today’s trouble. Although capitalism brought immense prosperity to the West, it is “too much” of it that is stopping the rest from catching up. Although capitalism is the only socioeconomic system that guarantees individual rights to life and liberty (because it cannot properly exist without them), it is for the sake of “society” that it must be tempered. Capitalism is justified as a necessary evil. It is justified on altruistic and utilitarian grounds — because, it is grudgingly admitted, capitalism satisfies “the common good.”

Capitalism is a practical system. It does bring the greatest good to the greatest number of people. But that is of secondary concern. Primarily, capitalism is a moral system because it is only under capitalism that man can reap the rewards of his own labor. It is only under capitalism that man is free to choose his line of work, free to specialize in it, free to trade his products and services for those of others on a free market. It is only capitalism that ensures man’s unalienable rights to life, liberty and property and its ruling principle is: justice.

Twenty years after the Cold War ended, capitalism is in recession, to be compromised on at the first sign of trouble. Moreover, its greatest practitioners, the traders, the bankers, the industrialists, the businessmen have become a persecuted minority, carrying a burden of blame for a crisis that was beyond their control, subject to public scrutiny and special laws and penalized, not for their failures, but for their virtues; not for their incompetence, but for their ability; not for their errors, but for their accomplishments.

Businessmen have in part themselves to blame. Amid accusations of greed and selfishness, they appease, apologize and they compromise. They attempt to appease the loudest of their opponents who will never relinquish the struggle. They apologize for their very existence, denouncing “inhuman capitalism” as much as the most collectivist of commentators. And they compromise on capitalism, relying on lobbying, on private manipulation and on pull in order to extract momentary favors from government.

Businessmen have allowed themselves to be persecuted because they never stood up to defend capitalism. Rather they chose to undermine the system and let it take the fall for faults that were not its own. There are few capitalists today who ever bother to defend the philosophy they live by, if even they do so consciously. In their absence, capitalism can be vilified and destroyed almost soundlessly, at least until some remember the source of progress and prosperity again.

Europe’s Uneven Recovery

Europe’s massive deficit spending is finally catching up with it. As Stefan Theil writes for Newsweek, markets reacted sharply this week “after rating agencies downgraded the public debt of Greece and warned about the outlook for several others.” With a deficit running at over 12 percent of GDP, Greece runs a serious risk of becoming the first developed country since the end of World War II to default on its debt.

Another South European country, Spain, is not much better off. We previously warned that its stubborn socialist policies are in fact hampering all of Europe; last week, Standard and Poor’s slapped a negative outlook on the country. Read more “Europe’s Uneven Recovery”

Disappointing Sarkonomics

French president Nicholas Sarkozy is quite possibly the greatest of European leaders today. He has regained for his country a preeminent position within the European Union and took little time to repair the transatlantic discord that so disturbed French foreign policy since the start of the Iraq War in 2003. On the economic front however, his achievements are less impressive.

Although foreman of France’s right-wing, Sarkozy has displayed little love for free-market economics since the recession struck almost two years ago. Indeed, he blames the “freewheeling Anglo-Saxon” model for today’s trouble and hopes to demonstrate “the victory of the European model” — which, probably, means the victory of the French model in his view.

France has comfortably overcome the townturn thanks to that model: the country has a huge public sector that currently employs about one in every five workers. Besides, Sarkozy has shown himself willing to protect the French private sector also, demanding, for instance, that automaker Renault create jobs at home in exchange for stimulus funding. The relative lack of unemployment comes at a cost though: the public debt has naturally skyrocketed while Paris maintains an 8.5 percent deficit on the budget. That in spite of demands from Brussels that it be cut to 3 percent in accordance with European regulation.

Sarkozy then turns out to be something of an old-fashioned Frenchmen after all. That is not to say that he isn’t refreshing at all. Abroad, the president has persued an intelligent and most successful foreign policy while at home, he has fulfilled many of his campaign promises, although not always with the most stunning of results. His large-scale effort to cut on public expenditure for example has been practically brought to a standstill since the first signs of economic anxiety became apparent.

In Newsweek Tracy McNicoll concludes that Sarkozy really has no economic principles. “Sarkozy has the flexibility to win battles but not the single-minded vision to define or win a war, as Ronald Reagan or Margaret Thatcher did.” Perhaps. Then again, flexibility alone seems a lot to be grateful for these days.

Sarkozy Strikes at the City

With France, along with Germany, leading the way of European recovery, President Nicolas Sarkozy has both the power and the prestige to launch a reinvigorated campaign against what he calls the “freewheeling Anglo-Saxon” model of finance. With his countryman Jean-Claude Trichet heading the European Central Bank and UMP-ally Michel Barnier soon to be installed as the union’s internal market commissioner, Sarkozy appears to have everything in place to make the world see “the victory of the European model, which has nothing to do with the excesses of financial capitalism.” No wonder that people are worried in the City of London.

London was quick to respond. Mayor Boris Johnson traveled to Brussels to lecture the European Parliament but his entourage of rabble-rousers and cameramen did little to persuade them. Nor was Chancellor of the Exchequer Alistair Darling’s argument that “London is New York’s only rival as a truly global financial center,” and therefore Europe should strengthen, not weaken it, well received.

Earlier, in conference with his colleagues from across the continent, Darling compromised on the creation of a European financial regulator. French finance minister Christine Lagarde praised the deal which according to Darling leaves considerable responsibility with national authorities. That is not how his counterparts sold the agreement at home.

Nevertheless, there is some truth in Darling’s statement. A European Systemic Risk Board is to be put in place to spot irregularities in the financial system that threaten to harm it. But it will have no power to leap upon banks to put any questionable practices to a halt. Rather it is supposed to issue recommendations and warnings alone.

Sarkozy has more weapons in store to bombard Paris to the world’s next financial capital however. A European Alternative Investment Directive seeks to install a framework for all alternative fund managers which in London is rather perceived as an attempt to shackle another sector of “freewheeling Anglo-Saxon” capitalism. If that were true, Paris in fact stands to gain very little: hedge funds taking a pre-emptive decision to leave London headed straight for Switzerland, not Paris or Frankfurt.

There is more reason for Londoners to be hopeful. As Ambrose Evans-Pritchard notes in the Telegraph, Barnier is actually “deeply averse to trampling on British sensitivities.” Moreover, his director-general, Jonathan Faull, is British. “Given the circumstances, the Barnier-Faull team is the best that Britain could hope for.” Whether that will stop Sarkozy remains to be seen.