Europe's Can-Do Spirit
The financial problems plaguing the US and Europe aren’t that different—but on a recent visit, Katty Kay finds Europeans less obsessed with financial ruin. Is it the social-welfare system, or the wine?
There are times I feel that the longer I live in America, the more European I become. This is one such time, and curiously it has little to do with the traditional recurring transatlantic flashpoints—the invasion of Iraq, the war in Lebanon, or the Israeli assault on Gaza. No, this time it’s something less dramatic but possibly more fundamental: the different nature of our economic systems.
Perhaps John Boehner has had a sudden conversion to the European economic model and wants to raise taxes, learn Swedish, and crack open the Beaujolais.
I know, yawn-inducing stuff—welfare systems—but bear with me.
I’ve just spent the week traveling through Europe, from London to Stockholm to Frankfurt. What I found was a continent feeling confident enough to stand up to its big brother across the Atlantic, and refusing to adopt made-in-America solutions to what many Europeans see as a made-in-America problem (for Iraq 2003, read Stimulus 2009).
The financial crisis has given rise to a distressing tendency in America to demonize the old world. Republicans and Democrats alike have voiced fears that America is headed down the European road—as if this were some unquestionably awful path that would lead us all, God forbid, to speak French and drink wine at lunchtime. By Europeanization these critics think they mean socialism, which is a stretch in itself. I can’t offhand think of single country in the 27-member European Union that is truly socialist. Center-left, sure. Higher tax rates than America, yes. But socialist? Not so much.
I mentioned to a group of European economists this week that America sees Europe as socialist and they smiled sadly, rather puzzled at the lack of understanding.
But when House Minority Leader John Boehner seized on Europe’s reluctance to spend more on stimulating their economies as an indication that President Obama is to the left even of those non-God-fearing Europeans, it seems to me that he, too, missed the point.
Boehner is right that an emerging European consensus believes in regulation, not more stimulus spending, as the answer to this crisis. There are structural and economic reasons for the reluctance to sign up for a global stimulus package. But there’s also another, more fundamental reason: Europe doesn’t feel it needs to pay more right now.
One of things that struck me most last week is that the economy isn’t dominating front pages, cable television, and social discourse in Europe the way it does in the States. There’s much less sense of panic. The continent seems psychologically more robust than the US. And that’s because the European economic and social models are affording citizens a degree of distance from housing, equity, and job losses.
That’s not to say Europe isn’t in a lot of trouble, too. The dismal economic numbers make Europe’s gloomy March weather look positively sunny. From the Baltic to the Mediterranean, the situation is so dire that some mutter darkly about the fragmentation of the European Union. Indeed, by some measures and in some countries, Europe is worse off than America.
Unemployment in Spain hit 13.8 percent at the end of 2008, and could rise to 20 percent next year. That makes American layoffs look paltry.
And Europe has its own version of the credit crisis—it just loaned to overly profligate countries in the East, not overextended individuals in Florida and Arizona. Austrian banks have loans outstanding to now-troubled Eastern Europe amounting to a stunning 70 percent of the country’s gross domestic product. Swedish banks have similarly disastrous loans to the Baltic countries, amounting to 30 percent of its gross domestic product. Try that for a subprime disaster.
Sure, part of the reason President Nicolas Sarkozy and Chancellor Angela Merkel are resisting calls for more stimulus spending is that their own populations don’t feel inclined to bail out other countries within Europe—the ones that made rash investments in the emerging but fragile markets of the East. At a time when we most need global solutions, national self-interest rules.
But these leaders are also resisting Washington’s calls to spend more on stimulus packages because there is little popular pressure from their own populations to do so. In comparing America’s system with Europe’s, Boehner is comparing oranges with pommes.
Europe’s high tax rates help fund a strong social safety net that is now protecting European citizens from the worst ravages of this crisis. We know that for Americans facing layoffs, losing their health insurance is one of the main sources of psychological stress and financial insecurity. It is an anxiety that Europeans are protected from, thanks to their welfare system.
My friend Anna in Stockholm best described the psychological difference between Europe and America during this crisis. Chatting over lunch, and yes, a glass of wine, she explained that if her husband, Thomas, who’s a journalist, lost his job, they’d be down on income but she wouldn’t have to worry about the family’s health care or her children’s very good state education. That is all taken care of. She freely admits Sweden’s high taxes are a burden that leave them little spare cash, but in this environment the benefits of the universal health care and education that those taxes pay for are very welcome.
Now, perhaps Boehner has had a sudden conversion to the European economic model and wants to raise taxes, learn Swedish, and crack open the Beaujolais. It’s certainly one way to avoid the political necessity of stimulus spending. Perhaps.
For me, a week in continental cities was enough to remind me of the values of the old world’s economic system. In this crisis, Europe feels like the safer place to be. Or maybe I was just seduced by the good libations.
Katty Kay covers American politics for the British Broadcasting Corporation. She is Washington correspondent for BBC World News America and has lived in DC for the past 12 years. She grew up in the Middle East and has reported from Africa and Tokyo. Kay is a regular contributor on Meet the Press , The Chris Matthews Show and a guest host for the Diane Rehm Show . She is the author, with Claire Shipman, of the upcoming book Womenomics: Write Your Own Rules for Success.