Is Europe Doomed?

| Tue Feb. 14, 2006 3:25 PM EST

Cato Unbound has an interesting debate going on right now over the future of Europe. Theodore Dalrymple asks, "Is 'Old Europe' Doomed?" and argues that at the very least the continent is "sleepwalking to further relative decline," probably, in part because too much left-style regulation is strangling the economy, compared with the "success" of neoliberalism here in the United States. Charles Kupchan takes a contrarian view, noting that the EU is about as wealthy as the United States (and that includes a number of Eastern European countries that are still developing). Anne Applebaum thinks Dalrymple may have a point.

It's an interesting debate, but it's not clear that Europe's really doing so much worse than the United States in the usual economic terms. (Dalyrmple also makes various cultural arguments that I'll set aside here.) Here, for instance, is economist Robert Pozen's take on those perennial Europe-U.S. comparisons:

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Gross domestic product has grown at an average rate of 3.3 percent a year in the United States over the last decade, compared to 2.1 percent a year in the EU15. Per capita GDP growth, however, has been very similar: 1.8 percent a year in the United States, 1.7 percent in the EU15. The main factor driving higher U.S. economic growth is not greater productivity gains; it is a more rapidly expanding population.

Right. Europe's growing at a slower rate than the United States primarily because, as Pozen says, its population hasn't been expanding as quickly as ours—a "problem" that could be easily corrected if the EU continues to swallow up countries to the east. Plus, as Olivier Blanchard has argued, Europeans have less income per capita because they prefer to work less and take more vacation than we do. It's a choice they've made, certainly a fair one, and hardly reason to think they're "doomed."

Nor is unemployment in Europe necessarily as bad—or at least as disastrous—as people make it out to be. According to the OECD, Germany has an official unemployment rate of 9.5 percent. (Compared to 5.5 percent for the United States—although this number likely understates the problem.) But that figure includes the former East Germany, where unemployment still hovers above 20 percent; in West Germany, unemployment is about 7.5 percent, hardly a catastrophe.

So Germany just hasn't been able to integrate a developing country into the fold all that successfully over the past decade and a half, though I'd like to know how quickly the United States could achieve success if it assimilated, say, Central America. But that doesn't mean Germany's labor policies and regulations are fatal to job-creation, either. (One culprit for Germany's unemployment rate is probably the European Central Bank's tight monetary policy, for instance.)

Beyond that, there are also reasons to think that the United States won't trounce Europe economically forever. In the future, the U.S. could become increasingly burdened by high defense spending and persistent budget deficits. One might note that part of the reason for the huge productivity boost in the United States over the past few decades has been that women have been entering the workforce in large numbers, a process that's only begun in Europe. (65 percent of American women work outside the home, compared to only 55 percent of European women—and countries like Italy and Greece are particularly imbalanced on this front.) Moreover, this study argues that European firms are still trying to implement fancy new IT technologies and learn various new retail techniques, and once they do, they'll rapidly catch up with their American peers. Maybe some of that's wrong, but it's reason not to be entirely confident that the European economy is "doomed."

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