Europe’s Alleged ‘Failure’, Harper’s Certain Gain

Prime Minister Harper’s pointed criticism of the dithering of European leaders at the G20 summit over the weekend was widely reported, and so too the angry riposte it received from EU Commission President Manuel Barroso. But too few sought to look deeper and ask what was really at work—for the Prime Minister must know that he has little leverage to back up his strong words. Barroso’s response aside, European leaders have nothing to fear from an angry Canadian Prime Minister; indeed, given our urge to conclude a free trade pact with the EU this year, the leverage is with them.

Once that is apparent, it becomes clear that Harper’s message is directed not at Europeans but at Canadians. As Dan Gardner argued in the Ottawa Citizen, Harper is invoking the European economic bogeyman in order to scare us into accepting his low-tax, austerity and deregulation agenda.

“This portrayal of low growth, sclerotic European welfare states plays to prejudices of old world decline and new world vigour that are deeply embedded in North America political culture.”

The Prime Minister’s portrayal of European failure and economic decline is a theme he and his Ministers have been pursuing for some weeks. Earlier this month he refused to provide additional resources to the IMF should it be needed to support European economies; they were wealthy enough to do it themselves, he argued, and implied their problem is a misallocation of that wealth. In a June 11th speech in Montreal, he argued that in contrast to Europe, “the Canadian approach is what the world needs…. A practical approach, an approach that works. An approach that includes both fiscal discipline and other growth measures [these being low taxes and deregulation].” Similarly, Finance Minister Jim Flaherty blamed European countries for running deficits and failing to promote economic growth, saying that “because of that, they are in the difficult situation, the crisis they are in today”.

This portrayal of low growth, sclerotic European welfare states plays to prejudices of old world decline and new world vigour that are deeply embedded in North America political culture. Harper and Flaherty are statesmen, so they speak in diplomatic niceties. But their colleagues reveal the real thinking of the Conservative Party. Harper’s former parliamentary secretary, Pierre Poilievre, speaking in the House of Commons in support of the IMF decision, decried the “sumptuous Euro welfare state”, with its “profligacy” where “everybody takes, nobody makes, work does not pay, indulgence does not cost, money is free and money is worthless.” Harper himself in a 1997 speech, famously and in a less diplomatic mode, told a gathering of U.S. conservatives that “Canada is a Northern European welfare state in the worst sense of the term, and very proud of it.”

The only problem, of course, is that, as with any bogeyman, most of what they conjure up is pure fantasy. Canadians are well aware that European countries, especially the ‘northern’ ones, enjoy high living standards: the UN’s quality of life or “Human Development Index” places seven European countries in the top 10. But it is less well known that Europe (and northern Europe in particular) also scores among the world’s top performers on indicators of economic efficiency.  The World Economic Forum scores countries’ economic competitiveness, looking at several factors including infrastructure, the macroeconomic environment, education levels of the workforce, goods and labour market efficiency, financial market development, business innovation, etc. Seven out of 10 of the most competitive countries in the world, by their measure, are in Europe, including the northern Europeans. (Canada is ranked 12th.)

The World Bank prepares a market-oriented “Ease of doing business scale” that measures the degree to which “the regulatory environment is more conducive to the starting and operation of a local firm”. Here, too, Europe is performing ahead of the pack: European countries make up five of the top 10 on the scale (while Canada is 13th). Similarly, according to the OECD, measures of labour productivity show 8 of the 10 top countries are European (Canada is 17).

And what about all that debt? No doubt Greece is wallowing in it; but in fact two-thirds of the Member States of the European Union (18 of 27 countries) have lower debt-to-GDP ratios than Canada—including all the “northern European welfare states” whose model is so objectionable to the Prime Minister.

Europe is far from perfect, and it faces a real challenge in harmonising its political and financial institutions in ways that will support its monetary union. But the EU is 27 distinct Member States. Rather than decry their dithering, one might instead marvel at their coordinated response to date. Perhaps too little, perhaps too late; but in contrast to a gridlocked U.S. Congress (just one country), or indeed to Canada’s fractured federalism (which even in the wake of the 2008 crash prevents the establishment of a single securities regulator), they haven’t done badly. Minister Flaherty throws his arms up in dismay suggesting that those Europeans (again, 27 distinct countries!) just can’t get their act together—and meanwhile only two weeks ago did Canada manage to legalise the inter-provincial transport of wine!

The narrative of wholesale European economic failure isn’t grounded in fact. Even in the midst of crisis, many European countries remain among the most advanced and competitive in the world. But it is a convenient story: in playing to North American prejudices, it can be invoked as a foil to justify a nakedly free market agenda of low tax, deregulation, and cuts to public spending.

It used to be, in the 1980’s and 1990’s, that when Canadian governments needed an excuse to shift rightwards in economic policy (and the Liberals did it too), they pointed southwards, invoking the ‘success’ of America’s free market model from Reagan onwards. That particular fairy tale has lost its appeal since the crash of 2008—and hence ‘European failure’ replaces ‘American success’ as the justification for conservative economic policy.

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