Europe's New Economics; Christa Randzio-Plath Reviews Europe as an Economic Powerhouse: How the Old Continent Is Gaining Strength

Article excerpt

Old Europe is always good for surprises. The region's actual economic performance is much better than expected, with growth rates above potential for this year and the next. Employment prospects are encouraging, with the creation of millions of new jobs and unemployment rates falling to below 7 percent. The public finances of European Union member states are also improving, bringing the fiscal deficit well below the critical deficit criterion of the Maastricht Treaty. Europe is thus gaining new strength in terms of growth. However, was this development homegrown because of successful implementation of the Lisbon Strategy, or foreign-made due to the competitiveness of Europe's exports? Economic research institutes give no clear picture, but Heino Fassbender's Europe as an Economic Powerhouse invites necessary reflection on Europe's weaknesses, failures, and perspectives in coping with growth, employment, and sustainable development.

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Sluggish economic adjustment remains a particular challenge for the Euro zone with its divergent development paths. But is this worry sufficient to deny the validity of the European social model and its role for the state? In contrast to other world regions, the European social model has persisted in the face of challenges from globalization. This model not only looks upon its costs, but also upon its productive contributions to growth and employment of social services, for example. This European social model characterizes countries by common features such as universal affordable access to education, training, social protection and health care, social dialogue, active labor market policies, predominantly public welfare systems, regulation of labor contracts, and anti-discrimination policies.

Through and through a European, Fassbender argues partly as Jeremy Rifkin does in The European Dream that Europe should not copy the US model. While Rifkin argues for less profit and more distributive justice, Fassbender pursues successful economic integration by using the customs union, single market, and single currency to underline the advantages of deregulation, smart regulation, and the concept of category definition. This is more like the US approach than the European approach. He wants less state control, despite the fact that most of the 10 most competitive economies listed by the 2006-7 Global Competitiveness Report are European. In the report, Finland, Sweden, and Denmark all performed better than the United States.

The report clearly demonstrates that there can be economic success stories with a strong interventionist state, high taxation for public spending, and comparable distributive justice. Those countries have macroeconomic stability, sound public institutions, independent judiciaries, market efficiency, and especially high investment in human resources that includes research and development, lifelong learning, and high output in tertiary education. Fassbender also favors investment in human resources so that Europe can become more competitive; it is clear that for him, the state must be at the service of the active market, and only market forces should be able to make the economy move. Europe will only become competitive with the excellence of its human resources, which is addressed by the European Strategy for Growth and Jobs.

For Fassbender, the single market demonstrates the power of unity to exploit the larger global market. Therefore he calls for the creation of more "champions," or big corporate players, in Europe. But Europe is far from reaching that goal, having only 20 percent of the largest companies worldwide, contrasting with the US share of 75 percent. For Fassbender, this explains Europe's lack of productivity as well as its failure to complete the single market. However, with the EU Services Directive and tens of extant directives for financial services in place, the European Union already has a more integrated market than the book leads the reader to believe. …