So both these scenarios seem to preclude export-led growth as a successful strategy. In any case, rich European countries will suffer a permanent structural decline in manufacturing: Much of the decline that we now see in European manufacturing is not the result of temporary economic movements but is part of a long-term adjustment of the industrial sector’s size.
Although the bigger EU countries have embarked on a policy to protect their industries as long as the crisis continues, they will doubtless be unsuccessful, because no country can ultimately halt structural adjustment by offering subsidies. Moreover, protectionist measures will increase fiscal problems and this will ultimately deepen the international downturn and delay recovery.
But it is too easy to say what should not be done. In the absence of any “miracle” cure, the medium-term aim should be to renew and strengthen the framework for international economic and trade cooperation. A significant cause of the current crisis was the imbalances in international trade and capital flows that built up over many years, without anybody taking responsibility for the consequences.
Remedial action in Europe should include completing the internal market. Only when Europe has a dynamic internal market can balanced European growth occur. Achieving that goal is more important than ever, because it will be some time before the US can re-assume the role of locomotive for the world economy.
Urban Backstrom is director general of the Confederation of Swedish Enterprise and a former state secretary in the Ministry of Finance who was charged with managing the 1991 to 1993 Swedish banking crisis.
Copyright: Project Syndicate
RSS