{"id":895,"date":"2011-08-22T12:38:20","date_gmt":"2011-08-22T11:38:20","guid":{"rendered":"http:\/\/proutistuniversal.info\/?p=895"},"modified":"2011-08-27T13:13:22","modified_gmt":"2011-08-27T12:13:22","slug":"global-economic-downturn-continuation","status":"publish","type":"post","link":"https:\/\/proutistuniversal.info\/?p=895","title":{"rendered":"Global Economic Downturn – Europe and China"},"content":{"rendered":"

by\u00a0George Friedman<\/em><\/p>\n

\"\"<\/a>

George Friedman - Stratfor<\/p><\/div>\n

The Crisis in Europe<\/strong><\/p>\n

The sovereign debt question also created both a financial crisis and then a political crisis in Europe<\/a>. While the American financial crisis certainly affected Europe, the European political crisis was deepened by the resulting recession. There had long been a minority in Europe who felt that the European Union had been constructed either to support the financial elite at the expense of the broader population or to strengthen Northern Europe, particularly France and Germany, at the expense of the periphery \u2014 or both. What had been a minority view was strengthened by the recession.<\/p>\n

The European crisis paralleled the American crisis in that financial institutions were bailed out. But the deeper crisis was that Europe did not act as a single unit to deal with all European banks<\/a> but instead worked on a national basis, with each nation focused on its own banks and the European Central Bank seeming to favor Northern Europe in general and Germany in particular. This became the theme particularly when the recession generated disproportionate crises in peripheral countries like Greece.<\/p>\n

There are two narratives to the story. One is the German version, which has become the common explanation. It holds that Greece wound up in a sovereign debt crisis because of the irresponsibility of the Greek government in maintaining social welfare programs in excess of what it could fund, and now the Greeks were expecting others, particularly the Germans, to bail them out.<\/p>\n

The Greek narrative, which is less noted, was that the Germans rigged the European Union in their favor<\/a>. Germany is the world\u2019s third-largest exporter, after China and the United States (and closing rapidly on the No. 2 spot). By forming a free trade zone, the Germans created captive markets for their goods. During the prosperity of the first 20 years or so, this was hidden beneath general growth. But once a crisis hit, the inability of Greece to devalue its money \u2014 which, as the euro, was controlled by the European Central Bank \u2014 and the ability of Germany to continue exporting without any ability of Greece to control those exports exacerbated Greece\u2019s recession, leading to a sovereign debt crisis. Moreover, the regulations generated by Brussels so enhanced the German position that Greece was helpless.<\/p>\n

Which narrative is true is not the point. The point is that Europe is facing two political crises generated by economics. One crisis is similar to the American one, which is the belief that Europe\u2019s political elite protected the financial elite. The other is a distinctly European one, a regional crisis in which parts of Europe have come to distrust each other rather vocally<\/a>. This could become an existential crisis for the European Union.<\/p>\n

The Crisis in China<\/strong><\/p>\n

The American and European crises struck hard at China, which, as the world\u2019s largest export economy, is a hostage to external demand, particularly from the United States and Europe. When the United States and Europe went into recession, the Chinese government faced an unemployment crisis. If factories closed, workers would be unemployed, and unemployment in China could lead to massive social instability. The Chinese government had two responses. The first was to keep factories going by encouraging price reductions to the point where profit margins on exports evaporated. The second was to provide unprecedented amounts of credit to enterprises facing default on debts in order to keep them in business.<\/p>\n

The strategy worked, of course, but only at the cost of substantial inflation<\/a>. This led to a second crisis, where workers faced the contraction of already small incomes. The response was to increase incomes, which in turn increased the cost of goods exported once again, making China\u2019s wage rates less competitive, for example, than Mexico\u2019s.<\/p>\n

China had previously encouraged entrepreneurs. This was easy when Europe and the United States were booming. Now, the rational move by entrepreneurs was to go offshore or lay off workers, or both. The Chinese government couldn\u2019t afford this, so it began to intrude more and more into the economy. The political elite sought to stabilize the situation \u2014 and their own positions \u2014 by increasing controls on the financial and other corporate elites.<\/p>\n

In different ways, that is what happened in all three places \u2014 the United States, Europe and China \u2014 at least as first steps. In the United States, the first impulse was to regulate the financial sector, stimulate the economy and increase control over sectors of the economy. In Europe, where there were already substantial controls over the economy, the political elite started to parse how those controls would work and who would benefit more. In China, where the political elite always retained implicit power over the economy, that power was increased. In all three cases, the first impulse was to use political controls.<\/p>\n

In all three, this generated resistance. In the United States, the Tea Party was simply the most active and effective manifestation of that resistance. It went beyond them. In Europe, the resistance came from anti-Europeanists (and anti-immigration forces that blamed the European Union\u2019s open border policies for uncontrolled immigration). It also came from political elites of countries like Ireland who were confronting the political elites of other countries. In China, the resistance has come from those being hurt by inflation, both consumers and business interests whose exports are less competitive and profitable.<\/p>\n

Not every significant economy is caught in this crisis. Russia went through this crisis years ago and had already tilted toward the political elite\u2019s control over the economy. Brazil and India have not experienced the extremes of China, but then they haven\u2019t had the extreme growth rates of China. But when the United States, Europe and China go into a crisis of this sort, it can reasonably be said that the center of gravity of the world\u2019s economy and most of its military power is in crisis. It is not a trivial moment.<\/p>\n

Crisis does not mean collapse. The United States has substantial political legitimacy to draw on. Europe has less but its constituent nations are strong. China\u2019s Communist Party<\/a> is a formidable entity but it is no longer dealing with a financial crisis. It is dealing with a political crisis over the manner in which the political elite has managed the financial crisis. It is this political crisis that is most dangerous, because as the political elite weakens it loses the ability to manage and control other elites.<\/p>\n

It is vital to understand that this is not an ideological challenge. Left-wingers opposing globalization and right-wingers opposing immigration are engaged in the same process \u2014 challenging the legitimacy of the elites. Nor is it simply a class issue. The challenge emanates from many areas. The challengers are not yet the majority, but they are not so far away from it as to be discounted. The real problem is that, while the challenge to the elites goes on, the profound differences in the challengers make an alternative political elite difficult to imagine.<\/p>\n

The Crisis of Legitimacy<\/strong><\/p>\n

This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own. In the United States this would lead to paralysis. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.<\/p>\n

These are all extreme outcomes and there are many arrestors. But we cannot understand what is going on without understanding two things. The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis. The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.<\/p>\n

The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That\u2019s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.<\/p>\n

STRATFOR<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The Crisis in Europe
\nThe sovereign debt question also created both a financial crisis and then a political crisis in Europe. While the American financial crisis certainly affected Europe, the European political crisis was deepened by the resulting recession. There had long been a minority in Europe who felt that the European Union had been constructed either to support the financial elite at the expense of the broader population or to strengthen Northern Europe, particularly France and Germany, at the expense of the periphery \u2014 or both. What had been a minority view was strengthened by the recession.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[5,22,6],"tags":[],"class_list":["post-895","post","type-post","status-publish","format-gallery","hentry","category-economics","category-political_economy","category-society","post_format-post-format-gallery","item-wrap"],"_links":{"self":[{"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/posts\/895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=895"}],"version-history":[{"count":57,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/posts\/895\/revisions"}],"predecessor-version":[{"id":969,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=\/wp\/v2\/posts\/895\/revisions\/969"}],"wp:attachment":[{"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/proutistuniversal.info\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}