Actually, Trent I agree with much of this; I think that the EUrocrats are working toward a 'despotic bureaucracy', as I describe it below, and that it is politically and economically a house built on sand.

I also agree that the demographic (and productivity) boost that the Eastern nations will bring to the EU (along with the Brussels' bureaucrats natural desire to expand their domain) are a big part of why the EU is looking to expand.

I just break with you in your more fervid descriptions of these processes - in large part because I think that those attitudes limit us in our array of responses, and also because I'm convinced that this is a deadly serious conflict and I never fight when I'm mad...

A.L.

I'm afraid that economically, Israel takes is too close to Europe. See Living in Minus

A.K.,

Two points missed in that article are

1) Israeli's connections to the Silicon Valley

and

2) Israel's ability to assimilate large numbers of immigrant jews and christians into their economy.

The first shows that the entreprenurial spirit is alive in Israel in a way it is not in Europe and the second means Israel doesn't have the demographic pension time bomb Europe does.

Israel's problems are structural-political. They cannot decide what to do about the Palestinians because they prefer a poltical system that creates stasis and corruption via small political party veto.

I do not believe that pensions NECESSARILY cause bankrupcy. If productivity grows fast enough, fewer workers CAN support more pensioners. Similarly, if there is enough economic growth, government revenues grow enough to prevent bankrupcy. Do you remember that Medicaide in America was supposed to run out of money in the late 90's? It did not because of unforcast growth in the US economy. Similarly, if productivity in America continues its (mysterious) unhistorically high growth, there will be no shortfall in Social Security. Of course, trends never continue (or we would have 10 billion people on the planet.) Still, there is a way out of the pension hole.

So what does this have to do with Europe? Europe, unfortunately, does not pursue American policies of encouraging productivity and economic growth. Even with clear examples of various economic practices, Europeans have decided that Socialism is the way. Which is fine, but there are consequences. Lower productivity and growth mean that the pension hole is going to eat them. Unless they raise the retirement age, cut benefits, raise taxes, or all of the above. None of these solutions are very palatable.

This is why a supposed 'European Superpower' to challenge the US will never happen unless Europeans fundametally change their political outllook. The European Union cannot challenge America economically as long as it remains Socialist. Since military strength is a function of economic strength, I am not worried about any future European military threat. Besides the political considerations there is an economic calculation. Even with very low defense spending, European countries are unable to adequately employ their workers or provide for their old people. America, with a huge military burden, easily outperforms the EU in almost every economic sphere.

The EU is a good idea. Free trade has helped the member countries enormously. The central bank has provided currency stability to many countries who have never experienced low inflation. However, Socialism has a political, not an economic, goal. It provides more equality but less prosperity. This is a trade off, and intelligent people realize this. One can honestly decide that equality is more important than economic growth. I now many leftists who feel this way. However, if the EU was serious about being a superpower, it would have to adapt measures to encourage economic growth over other considerations. I do not think this will happen, as European voters prefer Socialism. More importantly, so does the elite who run Brussels.

The article was excellent except for this:

"The danger is that much of continental Europe will suddenly reach a tipping point, when taxes rise, deficits rise, unemployment rises, public services deteriorate, deflation takes hold – and the best of the young depart, leaving the old and the poor to cope as best they can."

Under the above scenario, runaway inflation is usually what you get rather than deflation. See Argentina for example. When I think about France and Germany 20 years from now, I think of Argentina. Before WW II, Argentina and Canada were very close in terms of population and GDP. Today, Canada's GDP is close to 2x that of Argentina. And the gap is widening, fast.

As long as the Old Guard from the Bundesbank holds onto the reigns of monetary policy in Frankfurt, runaway inflation is improbable, but you have to wonder what the makeup of the EU Monetary Board will look like in 10 or 15 years when the pension and demographic issues start to bite.

Last, the global competition for productive human capital will harshly contribute to the EU's troubles - just as the harnessing of the technologically proficient billions of capitas in India and China will help drive productivity growth - in an increasingly global world.

It's not that easy to come up with a winning strategy for the EU - bringing in lots of former east bloc countries would be a short term band-aid at best - but it's very easy to evaluate their current strategy and pronounce them dead dead dead in the long-run competition for power.

I agree with the analysis, but I see this as a description of symptom, not cause. Proving causality is always a pain, so I don't offer any proof, just observation and my perspective. Some cultural tendencies in Germany (where I have direct experience) that bear on the pensioner problem:

• Germans are even more reluctant than Americans to have children. There is a stigma to families such that I found it easier to rent apartments with pets than with children. No amount of Kindergeld (money paid to families for having children) is going to alleviate this stigma.
• Being a child in Germany sucks. Sure, you're over-indulged, but you have no real role-models, no play places, and stifling cultural expectations.
• Education and training are extremely inelastic with a child's life course chosen pretty much from age 12 and practically inalterable from that point forward. This introduces the concept of stratified work duties early and that leads to...
• Culturally driven compensation that associate a job's rewards with arbitrarily assigned status rather than need, use, supply or demand.

Since technical skills are grouped in with "clerical staff", technical people earn clerk's wages. No matter how in demand the work is, no matter how desperately they're needing IT, programming, or engineering staff, the one thing they cannot do is raise wages to pull talented applicants into the field. This, coupled with the calcified work protection/job requirement system, leads to a huge lag-time between identifying need and being able to fill that need. Oh, and as soon as anyone gains the skills, they find that they can be a clerk at home forever with no promotion potential, or they can move somewhere that is willing to pay them commiserate with their skills.

And my point is (I know I had one around here somewhere) that the problem isn't political. It's structural and cultural. Cultural because of the stigma in having children and paying weenie wages for tech work, and structural for the weird barriers to work companies throw up for jobs at all levels of the enterprise and the inability to move from one career field to another.

The newly-emergent Eastern European nations are insane for seeking to join the EU. Ditto Turkey. If the EU was nothing more than a continent-wide free-trade zone, that would be great. Instead it is trying to pull all its member nations down to a lowest-common-denominator form of socialism and elitist bureaucracy.

At best, new EU members will see some very short term economic benefits. But those temporary benefits will soon be overtaken by a continent-wide economic malaise, followed by a continent-wide economic and political meltdown.

The United States should be busy negotiating bilateral trade agreements to cut tariffs and regulations, so that the more vigorous Eastern European countries have some kind of realistic alternative. Of course France and Germany will then accuse the U.S. of trying to undercut the EU. But so what? It would be true, and it would also be in the best interests of New Europe.

We still profess to believe in free choice, even if Old Europe doesn't.

Can we make Mr. Wiener the head of the U.S. Trade Federation? That slimy guy with the pencil mustache doesn't understand the issues nearly as well . . . . .

The EU is a canard. All they need is a European NAFTA to accomplish the sacred goals, but that's not really what it's all about.

"bilateral trade agreements?" Why? Any country that cuts its trade barriers benefits unilaterally. Why don't more countries do this? Geez, I don't know. Why does anybody support socialism? Stupidity or ignorance. When I'm dictator, everybody will have to read Hazlitt's Economics in One Lesson. Twice. Before breakfast.
-russ
p.s. that means you, too.

John said:
>Do you remember that Medicaide in America was supposed to run out of money in the late 90's? It did not because of unforcast growth in the US economy.

The demographics of Medicare changed with immigration as much as it did with productivity. More young workers came in simultanious with the increased productivity in the 1990s.

The Economist published population projections recently that America would have 500 million people by 2030 with an average age of 30.

That makes the current American Social Security system financially sound through the mid-to-late 21st Century, even with the "overhang" of baby boomer retirees.

John also said:
>The EU is a good idea. Free trade has helped the member countries enormously. The central bank has provided currency stability to many countries who have never experienced low inflation.

The European Common Market was a good idea.

The E.U. is a dirgist nightmare.

The problem is that the E.U. bureaucrats absolutely will debase the Euro. All the institutional incentives are there to do that. All that stands in the way are German appointees to the E.U. Central Bank. In a large multinational bureaucracy, that is no obstacle at all.

Run away inflation is one of the few things I can guarentee will bring a fascists back to power in Germany. If that is what it takes to overturn national and E.U. elites that let inflation happen.

This also leaves aside the fact that Europe doesn't have the labor mobility for people being hurt in one nation by Europe wide currency policies to move to another nation that is economically overheated by the same currency policy.

The voting public in the Euro policy losing nation will take it out on the ruling national politicians. And if it is bad enough, they will vote in a new government that will leave the Euro. If that nation is a major one like Italy, Germany or France, Katie bar the door.

A continent wide political crisis of confidence in a fiat currency strikes me as a really bad thing.

It's not just that Europe is not trying to increase productivity; they're actively working to decrease it.

Things like reducing the number of hours in the work week, and mandating ever larger amounts of paid vacation, all have the effect of making each worker produce less. They're doing some of it deliberately, in fact, as a misguided way of dealing with chronic high unemployment. The theory is that the total amount of work isn't increasing, so it has to be divided into more jobs. By reducing the workweek each employee produces less, so the employers will compensate by hiring more people. Brilliant, eh?

Of course, the rules say that when the number of hours per week is reduced, the employees must still be paid the same amount. Which means that output declines but the payroll expense for the employers remains the same. Where, exactly, they are supposed to get more money to pay more workers to produce level output is left as an exercise for the student.

Of course all of these decisions have their own cascade effects and unintended consequences.

If your best labor is moving overseas and your can forsee a future pension crunch, what are you gonna do with your company. You are gonna reduce your risk. The best run companies in these countries will start to move more and more operations overseas transitioning themselves into foreign corporations, further exasperating the situation. Its ancedotal but from personal experience it seems that Siemens (and I don't know where they do their development) is a generation behind with its data wharehousing solutions. Sooner or later they are gonna get tired of not being able to sell second grade crap or they will no longer exist.

you americans make it sound like thouse strange elite there in Bruxelles are like with half of the brain.
i think they are very good demagouges and can lie and practice very crafty desceit.
and please dont use expressions like religion with Europeans because i think religon is more a thing of USA.I think beeing an american is a religion because u know your american money culture and religions like cristianity and influences like judaism mix...basicly i have noticed that for some reason most americans smart or dumb tend to use expressions like good and evil or god and devil (even holy war)and so on...u get what i am saying?
i am not sure maybe we are on the different vawe-length
anyways I DONT WONA JOIN EU!
just got free from Soviet Union now to the another Union potensially very rotten thing
i would much prefer Nationalistic stuff
surely i will vote NO at referendum!!!
but the realy interesting thing is that are all these things that are happening and are said to be happining realistic,somebodys guiding or enivitable...
i mean do i-almost average 16 year old guy-have a realistic opurtunity to change something if something shit would happen to peoples of Europe???
or will there be another war???
then i would surely go with fascist because then they would be smarter i guess
oh and if u havent noticed americans u have become very lazy and take things for granted i mean all that advertising bullshit and other stuff
No i am deadly deadly seriously what are the lifetime goals of an average american,not an average american??? i could saaay money......
do u think that $$$$$$$$=FREEDOM????????think very hard about it....ver very very hard
if its money u will never get to the stars!!!I may sound now like a Marxist or whatever but im certanly not, just wondering about some things and wanting to hear your oppinion happy people...
anyways i wish u luck with the war on terrorism and Iraq because its normal things to do.
I do think that muslims are clously related to the monkeys.
i hope u americans take your job very seriously and with great care and duty(what i am not sure of)and clean some crap off from the face of the eart like Iran and some other muslim countries...
but please help countries that behave well!!!!!

It's worse than just even, Steven :). In Germany, at least, employees are paid time and a half during their vacation (after all, vacations are more expensive than regular life). So the costs don't even remain the same--they actually go up.

ee some kind of conn problem
it multiplied u may delete some

"The European Union cannot challenge America economically as long as it remains socialist." And John then points out that military might is a function of economic might. Good points.

Which means that, in order for the EU to challenge the US, it would have to give up socialism, which would put Chirac and France in a position of less power. And if it becomes a capitalist liberal or federal democracy, then it will no longer be a challenger to the American superpower. It will be in competition, but not opposition, to the US.

It is the difference between a boxing match and a race. In the first, two opponents beat each other silly until one is defeated and the other left standing. In the second, two competitors both try their best to reach the finish line in the shortest amount of time. They don't trip each other, or engage in other sorts of unsportsmanlike conduct, and whoever wins is determined by the clock, instead of how much damage they can do to each other.

We've had a head start in America. We stumbled on the right (or at least more right) way of running an economy than Europe. We had one advantage in that we never had, and still don't, an aristocracy. Granted we have all sorts of folks with aristocratic intentions, but they hold no real power. One of the advantages of limited government. And either France, and Europe recognize this, or else they will be left behind, economically, technically, militarily, politically, and culturally.

The end of the EU (pronounced Ewww) may well be nearer than anyone thinks. Quietly, many Americans (some not so quietly) have stopped buying French and German products.Without American dollars both countries are screwed. What happens next?

Trent, excellent analysis--and Den Beste's was,too.
Great comments also.
I have lots of thoughts on this--First of all, your theory leaves out one "tiny" thing, which our "post europe" friend touched on: Muslims (and Muslim immigrants) in Europe.
It seems that large numbers of the populations of Old Europe especially are Muslims to the extent that most of their working age population (and even under age 18) are Muslims who don't speak the native language and have little knowledge of the native culture.
Also, many of them are on welfare which would be another drag on their economies.
In addition, they promise to add very little to the work force of the EU's future (no language skills, haven't adapted to their environment, and tend to attend those madrassas schools where education is minimal).
Lastly, it seems that very few Muslim immigrants vote.
Ironically, I think most of these Western European nations brought these people in from Arab countries several decades ago to do the work (mostly manual labor) that they were too lazy and "educated" to do.
Poetic justice if these people bring down the EU.
Both the French and German economies are getting ready to "miss" their EU economic targets and the stability of the whole EUro depends on those two.
How in the world is "Old EUrope" going to find the money to fund an "EU federal army" when they can't afford their peacetime needs?
And that's assuming they can get all the EU members to cotton to the idea--which I doubt.
I think that Chirac's outburst this week was a big moment:
potential EU members that had signed either the letter of the Vilnius Group or the United We Stand statement (i.e. the old Soviet "satellite" countries) saw a face that, unfortunately they knew when Chirac told them to "shut up:" It was that of the Communist Kremlin.
And they knew what followed usually after that: tanks and soldiers entering their capitals.
Chirac may have done us all a big fat favor; I think these countries will think twice about EU membership now.
I agree with you, that the EU elites plan to sucker in the dynamic and growing economies of the New Europe to pay the pensions and welfare bennies of their tired economies.
As for the US offering "bilateral trade agreements," it got almost no press attention, but only a few months ago, President Bush proposed doing away with tariffs on all foreign trade.

Jennie T. made an excellent point about the growing numbers of young muslims in old europe. These young people will not be content to sit around, collect welfare, and procreate.

They have a "holy purpose" to pursue. Alienated from their host countries, culturally and religiously, they owe old europe no allegiance whatsoever. And their numbers are growing, boy, are they growing!

So not only will the growing welfare roles put a drag on old europe's economies, the increasing acts of violent and non-violent subversion will put a huge burden on law enforcement, and lead to decreased investment in old europe.

i think it would be very healthy to the Europe overall if the so called new Europe(by some americans)wouldn`t join the EU because then it would force the big countries of the old Europe to rethink their policies and make things better for everyone.But it seems there are some people behind the curtains who like to pull the wires so that they manipulate with people...what u happy people over the pond think about this?
is future Europe EVIL for u who are religios americans?? :D:D:D:D:D are u afraid??:D:D:D:D:D:D:D

Since military strength is a function of economic strength, I am not worried about any future European military threat. What about nuclear weapons?

On the muslims in Europe, it's not quite as bad as suggested by some above - the numbers I've seen have muslim populations around 5%-15% in countries such as Holland, Belgium, France, etc. The muslim populations are younger and reproducing faster than native-born populations so even without immigration the muslim proportions will grow over time. That is a large long-term issue for Old Europe which will further reduce economic vitality.

Regarding nuclear weapons, for the foreseeable future, the European Nations will be even more rationally deterrable than was the former Soviet Union. Long-term, it is worth wondering what happens if/when a major Western democracy with nuclear weapons votes in a government dominated by radical muslim elements. That day is probably 30-40 years away, but the issue is out there.

Which is just one more reason to develop an anti-missile shield of some sort - not only to reduce the blackmail opportunities for small rogue nations such as North Korea or Pakistan, but also to hold back potential threats from "former allies" in Old Europe.

Re "the European social welfare model, where the current generation of working people pay the benefits of the current generation of retirees"...

I thought this was the US model as well.

Not its original intent, but the current practice. My understanding is US retirees burn through their own social security contributions in just a few years. So US social security is, on the whole, acting as a retrogressive tax.- on-average poorer current workers funding benefits for on-average richer retirees. This description due to a noted MIT economics professor whose name I don't recall at the moment.

I'm not saying this is a bad thing. Only that the old "social security is an enforced savings system in which people pay for their own retirement" concept has apparently not reflected reality in years.

Previous posters may be on to something regarding the muslims. The EU elite wants to create a superpower that can challenge the USA. The Muslims want the global caliphate that the prophet told them to create (read Bin Laden's teachings if you don't believe me). What if Europe is the next Caliphate?

Think about it. Native europeans do not reproduce. European Muslims have huge numbers of children, and retain their original culture. They are not assimilating. Christianity is already dead in europe, so Islam's only real competition is socialism. Huge numbers of muslims are migrating to europe to take the menial jobs that are not good enough for pampered socialist europeans. What if muslims became an actual majority in europe within the next few decades? With the machinery of the EU and the economic infrastructure already in place, and huge numbers of muslims displaced by war in the middle east, it could happen. With their population decline, even Russia could become majority muslim. Europe would become the next Caliphate, and become the most fearsome enemy the US ever had.