2010-07-20

Europe's fault lines

I've covered a number of the topics in the following article, but Spengler places them in a different geopolitical context based on trade flows.

PIIGS to the slaughter
German exports have crossed an important threshold: shipments to Poland, Russia and China (combined) now exceed those to France. The original European Community members are becoming less important to Germany and Eastern Europe and Asia are becoming more important.



Europe's dependence on Russian energy supplies too often is the focal point of discussion of Russian influence over Western Europe. Why political influence should attend oil exports is far from clear; Mexico, Venezuela and Nigeria all export a great deal of oil to the United States, yet none of them has notable influence on America. Countries that want to sell oil generally take money for it, and except for the Arab oil embargo following the 1973 Arab-Israeli war, no oil producer in the past half-century has used the threat of cessation of supplies as political blackmail.

Germany's long-term problem is not energy, but people. With constant fertility, three-fifths of Germany's population will be aged 60 or over by mid-century, and it seems unlikely that the country's fertility rate of around 1.3 births per woman will rise at the behest of natalist government policies. What Germany requires is exports that translate into savings, and it cannot get them from the turgid European economies around it - most of Europe is in the same demographic predicament with an average fertility rate for the continent of just 1.5.

Foreign policy analysts should focus more on Germany's exports. Despite the country's problems, it still excels in many areas, particularly industrial machinery. Germany has one more generation in which to turn its industrial prowess into a buffer of savings to allay retirement costs. It is in a race against time; it cannot afford to fritter away resources supporting the welschen to its south and east.

Failing demographics underlying an expensive welfare state make the European Union (EU) a failing proposition. It is a loser's game in which the most benefits accrue to the weakest, and that is a game that Germany simply cannot afford to play.
The article provides a nice summary of how the Germans will be looking at their situation during the next leg down in Europe. It places the debt crisis in context and points to areas that may become political flash points.

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