The Economist, Thinks the Euro Will Muddle Through

The Economist in an article dated July 8, thinks the EU will muddle through the current crisis. Because critics underestimate the European art of compromise and overlook the determination in Europe to make the euro stick. Pulling the euro apart would be ruinously costly and threaten the EU’s very existence. The Economist recommends the following reforms: “The single market remains half-built. Mario Monti, an Italian economist and a former commissioner, has recently set out just how much more is left to do. The EU is 30% less productive than America in services. Because European services companies operate behind national barriers they innovate less and they tend not to gain the full economies of scale. Whole areas, such as health care, are exempted from EU-wide competition. Likewise some high-tech industries, such as telecoms, have been protected and others, such as e-commerce, barely existed in 1992. A single digital market could be worth 4% of EU GDP by 2020. The EU has a costly, fragmented patent system, so products (like far too many workers) cannot cross borders easily; energy supply has not been properly liberalised; debts are hard to collect across borders. And so it goes on. National to-do lists are just as long. In Spain and Italy privileged workers are protected, discouraging new permanent jobs. German entrepreneurs are immediately taxed on equity they put into a start-up. Europeans retire too early everywhere.” Bolstering their viewpoint, the results of a new poll out shows that Europeans support the E.U. Asked if they were better off in a free-market economy, 73% of Germans and 67% of French said yes, according to a survey released in June by Pew Research Centre. That compares with 65% and 56% respectively at the height of the boom in 2007 and it rivals America, with 68%, and eclipses Britain, with 64%, where support for free markets has fallen. Like the U.S., European politicians don’t have the courage to enact reforms. The barrier to reform has always been political, not economic. Jean-Claude Juncker, prime minister of Luxembourg, said in 2007: “We all know what to do, but we don’t know how to get re-elected once we have done it.”