Michael Quinn, professor of economics and associate director of Ph.D programs at Bentley University, led a discussion last night on the economic conditions and current political situation of the European Union (EU). The lecture, titled “EU After the Great Recession,” was hosted by the Fletcher Political Forum at The Fletcher School of Law and Diplomacy, which hosts two events each year.
Quinn started the lecture by discussing challenges that the EU is currently facing. He explained that the current recession has threatened the future of the EU as well as the Eurozone, but expressed his belief that both organizations do, in fact, have a future, noting the significant costs that a split in the union would incur.
“Do not underestimate the ability of people in Brussels to muddle through,” he said.
The EU has passed the most acute phase of the crisis, but now it is in a more chronic phase, according to Quinn. He noted that this has led to a number of questions about short run issues.
“What should the [European Central Bank] do with money policy? What about unemployment? What about debt?” he asked.
Quinn underscored that similar dire economic problems came about in Europe during the 1970s, explaining that the United Kingdom was even forced to take a loan from the International Monetary Fund in 1976.
“I would argue we’ve seen a lot of these things before,” he said. “These are the short run concerns.”
The EU has been too focused on treating issues such as labor disputes, deficits and stagflation, but these issues are the symptoms, rather than the core of the problem, according to Quinn.
“We do have to deal with some of the short run macroeconomic stability problems,” he said.
It is important, however, to also focus on the causes of the long run problems that the EU is currently facing, Quinn added. Too much focus on short-term problems may cause negligence of the problems coming down the road, he noted.
Quinn explained that in dealing with these issues, looking at pure economics and mathematical models does not always provide the whole picture.
“I’m a big believer … in history,” he said. “You have to understand the history, you have to understand the political situation, you have to understand the institutions.”
Today, the EU does face some issues that it did not face during its economic travails in the 1970s, Quinn added, noting demographic issues surrounding the increasing relative proportion of the elderly population, falling birth rates and higher life expectancies.
“Over twenty to thirty years, it’s going to get much, much worse,” he warned.
Paying for healthcare and pensions for an older populations can create run structural problems, Quinn explained. He added, however, that the underlying issue involves the EU’s lack of sufficient productivity growth.
Quinn said that the EU’s productivity growth was catching up to that of the United States in the 1990s, but then began to fall off. He explained that without this growth, rising wages add to the problem.
“If your wages are growing quickly, you can either devalue your currency … or your workers have to become more productive to justify having higher wages,” he said.
This lack of productivity growth is now beginning to get more international attention, according to Quinn.
He then discussed a number of different kinds of reform projects that the EU is currently pursuing, including education reform and labor market reform.
In solving some of these issues in the long run, Quinn underscored immigration as an important potential solution. He noted that immigrants often come with an entrepreneurial spirit and a sense of risk-taking that can create innovation and business development in their new country.
“The question is, how do you capitalize on this?” he said.
Quinn added that immigration in Europe faces a number of challenges, including the different cultural and religious backgrounds of immigrants that may cause difficulty with integration. Immigration, however, can serve as a solution for the EU’s shrinking labor force, decreased productivity and elderly burden, he explained.
Quinn also discussed the possibility of increasing retirement ages, but underscored that this can only be successful if there are additional job opportunities.
“If you have more workers … that does boost the overall productivity of your workforce,” he noted.
The issue of corruption is also a challenge for the future of the EU, according to Quinn.
“When we think about what corruption does, corruption reduces your real credibility with people,” he said.
Quinn explained that the support of a country’s populace is imperative to go through with painful long-run reforms, and without faith in a country’s government because of corruption, these reforms are much harder to push through.
“Once you’ve ruined their faith in government, it’s really hard to get them on board for reforms,” he said.
Quinn also noted that corruption may impede innovation and entrepreneurship in the EU. He added that, ultimately, unlike the United States, the EU has a fairly weak central government, so enforcing some of these reforms and requirements will continue to be a challenge.