Published by the Centre for Independent Studies (Sydney), 16 December 2010 (PDF)
Europe is a continent in crisis. The financial problems of many European economies became visible to the rest of world when Greece only narrowly escaped bankruptcy in May 2010. Ever since, more unpleasant data about the state of public finances in Europe have emerged, putting pressure on Europe’s common currency, the euro.
With the focus on finances, it is easy to overlook that many of Europe’s current problems are not purely economic. They are the result of some basic construction errors of the European project.
European integration was a response to the catastrophes of the two world wars. By binding European nations closer together and integrating them in the framework of the European Union, it was hoped that former rivalries could be overcome and lasting peace and prosperity be created.
As it turns out, despite these efforts Europe has remained a continent with countries so different that they cannot be effectively harmonised under the EU banner. Above all, their diversity and a lack of a common European identity make it impossible to organise European affairs under the model of a national state. The European Union lacks the basic constitutive element of a nation state, namely a people.
Given the inadequate structures of the European Union, Europe is unable to come to grips with its three most difficult challenges: the state of public finances; the ageing of its population; and the integration of migrants from other cultural backgrounds.
The financial problems are not limited to Greece and other countries at the periphery of the Eurozone. Even supposedly stable countries such as Britain and Germany have long lived beyond their means, accumulating enormous amounts of debt in the process. Part of Europe’s debt problems are hidden in pension liabilities. Once they are taken into account, the scale of Europe’s debt is frightening at several times annual economic output in many countries.
Problems are compounded by the fact that Europe is ageing fast. Below replacement level birth rates have been the norm for decades. Combined with increasing life expectancy, European society is greying while the working age population is shrinking. This means that dependency ratios will worsen, while Europe’s ability to deal with its debt problem is already seriously diminished.
Theoretically, migration could ameliorate some of the effects of Europe’s changing demography. However, integration of migrants into mainstream society has often failed.
Each individual problem—debt, demography and disintegration—would be serious enough in itself to cause severe trouble for Europe. Taken together, these problems make a European recovery from its current malaise almost impossible.
Europe’s current crisis could be the beginning of a terminal decline of the European model. The continent that made the modern world is about the undo itself.