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At a meeting in Lisbon
in 2001 the leaders of the European Union proudly proclaimed that the Union would become, by 2010, "the most competitive
and dynamic knowledge-based economy in the world." They obviously were
boasting of tomorrow because they could not brag about the past. Today they
speak but little of the future as most members of the Union
failed to live up to expectations. No matter what set of statistics we may
consult, they all reveal that "old Europe"
is stagnating and even staggering under a heavy blanket of social constraints
and obligations. French, German, and Italian economic growth rates are barely
positive but reveal continuous growth of government and public debt.
Leading French and German politicians never tire
proclaiming "European solidarity" by which they mean a feeling of
unity of social and economic standards. They orate on union and harmony that
bind all Europeans and on responsibility and compromise between employers and
workers. Unfortunately, their real world is rather different; it is deeply
divided into large classes of economic beneficiaries and victims. Millions of
workers are condemned to chronic unemployment while other millions benefit
from their rejection. In France,
the present rate of unemployment is given at 12.1 percent, in Germany at 10 percent, and in Italy at 9.6
percent. In the French-speaking part of Belgium
it is 19 percent, and in the European Union capital city of Brussels an astonishing 22 percent. If we
were to add the underemployed and de facto-unemployed in public make-work
schemes, the rates would be even higher.
Most European politicians refuse to pay heed to
market principles of employment and economic growth. They are woefully
ignorant of unhampered market wages that assure not only full employment but
also equitable wage rates reflecting the value judgments of consumers. They
are enamored with doctrines of conflict, relying on
compromise, adjusting the differences, and meeting halfway. Economists who
observe the European scene may draw the conclusion that exploitation and
class-conflict doctrines continue to shape European thought and policies some
150 years after Karl Marx first expounded them.
Labor law
and regulation condemn workers to a life of idleness and waste yet Western Europe needs an influx of immigrants simply to
fill basic service jobs. It needs "guest workers" who take the
places of native workers on welfare and unemployment doles. It needs
immigrants whose numbers are rising steadily while the native population is
shrinking with birth rates below replacement levels. Longevity continues to
rise, which places increasing care burdens on the young. It cannot be
surprising that young immigrants are welcome throughout Western
Europe.
It is ironic and yet so plausible that the EU
countries with the highest rates of unemployment also attract most immigrants
who render the services which the natives do not choose or are prevented from
performing. Since the fall of the Berlin Wall and the disintegration of the Soviet Union, many nationals of the former satellite
countries managed to find their way to the West. In 2004 the European Union
consisting of a club of 15 Western European countries opened its doors to 10
new members eight of which had been parts of the former Eastern European
communist bloc (the Czech Republic, Estonia,
Hungary, Latvia, Lithuania,
Poland, Slovakia, and Slovenia). The new members
increased the number of EU citizens from 370 million to 455 million. But the
number of migrants from the east to the west is minuscule when compared with
the millions who streamed into Western Europe before the breakup
of the Soviet Union. More than 20 million
people from North Africa and the Middle East managed to settle in Western Europe. Most of them are Muslims believing in the
teachings of the Prophet Mohammed. Five to six million are estimated to live
in France alone, three to four million in Germany, two million in Britain,
one million apiece in Holland and Italy, and half a million in Spain and
Austria each.
The European Union is in the process of basic
transformation and modification. The old welfare states that are attracting
the immigrants are declining in economic position and political preeminence while new members are rising in economic
productivity and political position. Some actually are reducing their tax
burdens and business restrictions while the old members basically distrust
unregulated markets and favor government
intervention to equalize incomes and maintain living standards. Some
newcomers prefer to look to Washington for
guidance and support rather than to Paris, Berlin, and Rome, which
is bound to strain and weaken the Union. In
fact, the basic differences between "old Europe"
and the new members searching for new ways to the light cast a dark cloud on
the future of the European political union.
While labor law and
regulation give rise to mass unemployment of native labor
and to extensive influx of foreign labor, they also
prompt business capital to seek more hospitable conditions abroad. Massive
amounts of French and German capital have found their way to friendlier
climes not only in other EU member states but also in East Asia and the United States.
It raises labor productivity and wage rates
wherever it goes and lowers them wherever it leaves. In coming years French
and German capital can be expected to move to new EU members in the east, in
particular to Lithuania, Poland, the Czech
Republic, Slovakia,
Hungary, Slovenia, Croatia, and wherever it is
welcome. Of course, French and German politicians can be expected to explain
the outflow of capital in terms of employer greed and labor
exploitation.
In coming months European voters will be asked to
accept an 800-page constitution that will have superior sanction to the
ordinary laws of the member states. If accepted by the voters of all 25
countries, it will enlarge and strengthen both the EU bureaucracy in Brussels and the European Court of Justice in Luxembourg. But
it is highly unlikely that the voters of all member states are ready to
surrender their legal systems and submit to a superior law contrived by
foreign politicians and interpreted by foreign judges. French voters who are
asked to approve the constitution on May 29 may be the first to reject it. They
may be followed by the voters in the Netherlands
and surely the United
Kingdom. If any one country should vote
"no", the constitution will not become law.
It is doubtful that 455 million Europeans are ready
for a meaningful constitution that may gradually equalize the benefits and
privileges currently bestowed by national laws and regulations. Most voters
happily partake of their social benefits but are loath to share them with
foreigners no matter how destitute they may be. Surely, French and German
politicians would not dare to suggest that their voters share their benefits
with the people of Estonia,
Slovakia, or Poland who
earn one-seventh to one-sixth of their incomes. And even if they would and
the 800-page European constitution should become the basic law of Europe, most member governments would pay little heed
to its provisions - as many European governments have done to their
constitutions throughout the 19th and 20th centuries.
Monetary Union
The political world is failing to realize the hopes
and aspirations of many Europeans. In contrast, the world of money is
promising much and may actually deliver some benefits. At a meeting in Maastricht, the Netherlands, in December 1991,
the members of the European Union agreed to adopt a common currency to be
issued and managed by a central bank. The treaty, which subsequently was
ratified by twelve countries either by parliament or by popular referendum,
stipulates certain membership criteria - namely, a budget deficit of no more
than 3% of gross national product (GDP) and public debt of no more than 60% of
GDP. To enforce these basic conditions a Stability and Growth Pact of 1997
gave the European Commission the power to levy fines on member states that
violate the agreement.
It is interesting to reflect on the monetary thought
that guided European policy makers who created the supercentral
bank. They obviously are convinced that they must issue and manage money
because the people are unfit to manage their own, that government must mint
coins, issue notes, define "legal tender," establish central banks,
conduct monetary policy, and then manipulate the price level. In short, money
is a political issue which is a domain of government. Monetary freedom is a
faint memory of the distant past.
The European Central Bank, which is located in Frankfurt, Germany, is a quaint structure of
political control and command. It is headed by a president who is elected by
EU heads of state. He is assisted by two governing bodies, the Executive
Board which implements the monetary policy, and the Governing Council
which is composed of the Executive Board and the presidents of all
member national banks. It is to shape monetary policy by majority vote,
holding the rate of inflation to 2% or less. Another committee consisting of
the finance ministers of the Union is in
charge of the euro's international exchange rates. In
short, the Council shapes monetary policy but EU finance ministers may
fix euro exchange rates toward the U.S. dollar, the
Japanese yen, the Chinese yuan, and others. One
committee manages the causes, another may dictate the effects. The finance
ministers obviously are unaware of the laws of the market that ultimately
determine the effects.
The euro, the single
European currency, came into being at the beginning of 1999; it was readily
accepted by 12 member states but rejected by Denmark,
Sweden, and the United Kingdom.
Since then, the three biggest members, France,
Germany, and Italy have
consistently violated the conditions of the treaty and managed to avoid the
fines. Their governments continue to suffer large budget deficits which drain
European capital markets and thus keep productive investments and labor productivity lower than they otherwise would be. The
average euro area growth rate barely reaches 0.2
percent. The French, German, and Italian disregard of the Stability and
Growth Pact obviously annoys and troubles all other members of the currency
union. They are fearful that they would be held to higher standards if they
would dare to violate the treaty. But, sooner or later, they may dare to
imitate the violators and join them in the pleasures of deficit spending,
which undoubtedly would turn the 0.2 percent growth rate into a 0.2 percent
decline rate. There are countries which, by their policies, lead other
countries; France, Germany, and Italy surely do not lead the way.
Most Europeans nevertheless welcomed the euro; it simplifies intereuropean
transactions, increases competition, encourages the flow of capital, and
opens many markets. Internationally, it may even challenge the U.S. dollar's preeminence in world trade and finance. The Monetary
Union is likely to continue to expand and exert its helpful effects on
European economic conditions. Estonia,
Lithuania, and Slovenia are scheduled to join in 2007,
followed by Latvia and Cyprus in
2009. In time, other member states may get their financial houses in order
and qualify for membership.
No matter what we may think of national central
banks, that is, monopolies in which there is only one provider of
legal-tender money, the combination of several into one superbank
actually checks their power. It confines their propensity to inflate and
depreciate the currency within average bounds. And the European ambition to
compete with the United
States limits the temptation to inflate
and depreciate the euro to the inflation and
depreciation rate of the U.S. dollar.
Demographic Changes
What we look for may not come to pass. But we always
live under the shadow of future events. Europeans live under the cloud of
economic stagnation and mass immigration that may affect their future. More
than 20 million immigrants from North Africa and the Middle
East who are likely to multiply in coming decades may, in time,
affect economic, social, cultural, and religious conditions. Most of them are
Muslim. A half-century ago, there were but a few mosques in Europe, today
nearly every country has a thousand, with five to six thousand each in France
and Germany. At the present rate of growth, there may be tens of thousands by
the end of the century.
Most Muslim immigrants undoubtedly come with hope
for gainful employment and a better life. Per-capita annual income in
Morocco, Algeria, and Tunisia, all former French territorial possessions that
are launching the flood of immigrants, is a fraction of French per-capita
income, $1,320 in Morocco, $1,890 in Algeria, $2,240 in Tunisia, and $24,770
in France. Similarly, Germany
with per-capita income of $25,250 attracts millions of Muslim immigrants from
Turkey
with per-capita income of $2,790. Surely, the economic incentives for
migration are considerable. They came legally and illegally. And thanks to
their high birth rate and the sub-replacement birthrate
that is the norm among native Europeans, the demographic fact points toward
great changes to come.
Economists explain the glaring differences in
incomes as an inevitable consequence of different economic thinking, social
and political mores, and religious beliefs. They are convinced that man is
productive wherever he is free to pursue his own ends and where the fruits of
his labors are safe and secure. Most Europeans have
enjoyed variations of such an order for more than 200 years. Most countries
of the Muslim world, in contrast, are lingering in deep want and poverty
because people are severely limited in their freedom to pursue economic ends.
They are poor because their governments limit them in their economic
activity. Governments administer law and conduct policies in accordance with
the teachings of the Koran which limits all believers to just two types of
income: wages and charity dole. In Europe
where most people profess a Christian faith the population may be free to
pursue all four conceivable types of income: wages, interest, profits, and
the dole. Wages are payment for services rendered. Interest is payment for
the use of property in the passage of time. Entrepreneurial profit is the
return of business that meets a need hitherto unknown and uncovered. Dole is
charity income distributed by government or individuals.
The Koran limits all believers to just one form of
earned income, to payment for services rendered. It prohibits interest
payment (riba) over and above the account of
principal. "Believers, do not live on usury, doubling your wealth many
times over. Have fear of God, that you may prosper, guard yourselves against
the Fire prepared for unbelievers." (Koran, Sura
3:131). Similarly, it prohibits any economic activity that involves
uncertainty, risk, or a speculation (ghara). Option
and futures contracts that may yield entrepreneurial profits are prohibited
as are foreign exchange transactions that aim at profits.
Any society that limits economic activity to just
one form of earned income is condemned to eternal poverty with all its
despondent symptoms and consequences. In Muslim countries such as Afghanistan, Pakistan,
Indonesia, Iraq, Mali,
Niger, Chad, and Sudan,
national income per capita is estimated at less than $1,000 a year, which
compares with some $44,000 in Luxembourg,
$40,000 in Switzerland,
and $37,000 in the United
States. In Kuwait
and the United Arab
Emirates, the two wealthiest Muslim
countries, per-capita income is less than one-half of average American income
despite bountiful oil resources. And even this amount does not consider the
lofty emoluments of government officials, the emirs, sultans, and princes,
whose shares obviously reduce the average income of the common populace.
High birthrates and low
investment rates may aggravate the poverty. After all, levels of income and
standards of living are determined by labor productivity
which is a primary function of the amount of capital invested per capita. An
increase in investment per head increases productivity and income; a decline
lowers them. High birthrates and stagnant
investment rates obviously lower the investment per head and depress the
levels of living. They are eating away at living conditions throughout the
Muslim world and increasing the pressure to emigrate. Sunni Somalia with a
population of some 8 million is estimated to grow at an annual rate of 4.2
percent; by the middle of the century it may be bigger than Italy whose
population is shrinking continually. Yemen
with a population of 20 million is growing at a 4.1 percent rate; it may
surpass Germany
by the end of the century. Iraq
with a population of some 25 million is growing at a 3 percent rate and soon
may exceed the number of native Frenchmen.
Some 20 million Muslims already have settled in Europe. At a 4% growth and immigration rate there will
be 140 million by the middle of the century and several hundred millions by
the end of the century. Christian conversion to the Nation of Islam would
further increase the number. Thousands of Christians in Europe
marry into Muslim families and join the Nation each year, but the number of
Muslims turning Christian is rather small. It takes extreme courage and stoutheartedness to renounce the world of Islam. Converts
stand accused of apostasy, a transgression against Islam, the consequences of
which may even be deadly. Apostasy is punishable by death in Afghanistan, Iran,
Mauritania, Pakistan, Saudi
Arabia, Sudan,
and Yemen.
It is merely illegal in Jordan,
Kuwait, Malaysia, the Maldives,
Oman, and Qatar. In
Christian countries converts enjoy the protection of the law but face common
dangers. They are ostracized and rejected by their own families and
threatened by Islamic fundamentalists. After all, Muslims everywhere and at
all times are under the obligation to enforce the "integrity of
Islam" of which the punishment of apostates is an important part. Individuals
all over the world are killed for deserting Islam, many more are abused and
assaulted, and many are driven underground in their new faith. It is safer by
far to leave Islam for atheism or agnosticism than to turn Christian.
Large numbers of Muslim immigrants readily
assimilate and become French-Muslim, German-Muslim, and Italian-Muslim. Muslim
religious life flourishes in Europe as is
visible in the rapidly growing number of Mosques. But there also are
immigrants who reject the very idea of integration into mainstream European
life and instead strive toward Islamic separation. Muslim pressure groups,
political lobbies, and religious charities cooperate effectively everywhere
in Europe. They readily confront any group,
party, or government that ignores or questions Islamic values and standards.
Many Europeans who are clinging to the old creed of
"passive tolerance" toward all newcomers are frightened by the
political activism of some Muslim immigrants. Appalled by the savage attacks
on the World Trade
Center and
the Pentagon on September 11, 2001, by the bombings of four packed commuter
trains in Spain
on the morning of March 11, 2004, and the assassination of several critics of
Islam, they are sensing a deepening conflict between the West and East, even
a "clash of civilizations." The pacifists in their midst who watch
the trend and count the numbers are ready to yield and surrender. In their
eyes, Europe is being Islamized; by the end of the century Europe
will be Muslim.
Economists who cannot take their eyes off economic
income, economic productivity, and standards of living strongly disagree with
such deductions and conclusions. Surely, the ethnic and religious trends may favor the world of Islam, but human nature and the
inexorable economic principles of economic life do not. For obvious reasons
mentioned above, the economic limitations imposed by the Koran condemn most
faithful believers to dismal poverty and hardship. Their levels of labor productivity and standards of living are
significantly lower than those in Christian Europe as are average life spans
and functions; they would soon fall to Muslim levels if European nations were
to labor and live by Muslim rules. It is rather
unlikely that many Europeans will readily and peacefully suffer such
reductions in the name of Allah.
Many more millions of Muslims may stream into Europe and make their voices be heard before EU
politicians will recognize the economic dangers of Islamization.
Many are socialists who favor their particular
brands of an economic command system. After all, socialistic or social
democratic parties presently lead or participate in 13 of the old 15 EU
member governments. All 10 new members that joined in 2004 are
quasi-socialistic, having emerged from decades of communistic or socialistic
domain. European socialism and the realm of Islam undoubtedly bear many
similarities but differ significantly on the very nature of their command
systems. Will it be secular or religious? And who will be in command? These
very differences are rarely ever solved amicably and peacefully.
* * *
Fireworks were lighting the skies of Europe when, on
May 1, 2004, the old east-west division of Europe
came to an end. Eight new states from the former communist bloc together with
Malta and Cyprus joined
the European Union. The president of the European Commission, the Italian
Romano Prodi, expressed a common joy of fulfilment:
"Five decades after our great project of European integration began, the divisions of the Cold War are gone once and for
all .... The new members bring to the Union
the cultures and diversity of 10 countries with distinct historical roots
stretching back through the centuries."
What the joy of fulfilment is to some Europeans is
an affliction to many others. Jubilant Europeans hail the removal of all
restrictions on the movement of economic goods, services, business capital,
workers, and tourists. They welcome the fresh air of individual freedom and
all the benefits it may bring. Many Europeans, however, have feelings of fear
and distress. They bewail and oppose the removal of political restrictions
that have given them not only much protection from foreign competition but
also special boons and favors. And finally, a few
economists who would like to join the jubilation are alarmed by the growing
encounter between the West and the world of Islam. They are mindful of the
demographic facts as well as the religious and ideological fervor that suggests a continent ripe for Islamic
advances. They now brood and wonder whether the ancient conflict between Europe and militant Islam will flare up again.
Dr Hans F. Sennholz
www.sennholz.com
Dr. Sennholz is President
of The Foundation for Economic Education, Irvington-on-Hudson, New York and a
consultant, author and lecturer of Austrian Economics.
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