The European Dream (11 page)

But when it comes to the “real world” of making a living, of income and expenditures, of investments and returns, we Americans don’t pay all that much attention to the comings and goings in Europe. We generally prefer to keep our economic sights on the East—to Japan and the Southeast Asian Tiger countries. Of late, American businesspeople have turned an eye toward China, convinced that its vast resources, population, educational skills, and drive make it the next likely great economic power.

While we Americans continue to look to the Pacific and Asian economies for signs of quickening competition and greater commercial opportunities, a quiet economic revolution of a different sort is taking place in the land of our European forebears, of which we know very little and to which we are ill prepared to respond.

Americans are vaguely aware that new economic and political realities are emerging in Europe but, when pressed, are unable to say exactly what they are. We know that there is now a common currency across much of the continent and that we no longer have to make anxious and often misinformed split-second calculations on how much the local currency is worth in dollars as we did before the introduction of the euro. Indeed, because the euro is now virtually on a par with the dollar—actually it’s slightly stronger—it is easier for Americans to buy things in Europe, since we no longer have to do a lot of mental math to figure out if we are getting a deal or being cheated. Remember when a dollar was equivalent to 1,700 Italian lire?

And when we go through passport control in London, Frankfurt, Paris, and Milan, we notice that all of the Europeans in the next line over are queuing up under an insignia emblazoned with twelve stars in a circle against a blue backdrop. A single EU passport now suffices for every European traveler. We begin to think of everyone in the other line not as Frenchmen, or Italians, or Germans, or Poles but as Europeans.

We Americans are still conditioned by our memory of the old Europe as a composite of thousands of once walled cities and surrounding countrysides nested inside dozens of rigidly marked-off national boundaries, in a kind of tight mosaic of borders touching up against borders. The old Europe felt tight, even claustrophobic, for Americans used to enjoying what we call “breathing room.” I recall a conversation with a teenage son of a close Italian friend of mine more than fifteen years ago. The young man had just returned from his first visit to America, and I asked him what he liked best about his experience. He said, “America is so open.”

Now Europe is knocking down the walls, the borders, the boundaries, the endless demarcations that have separated people from their neighbors and strangers for more than two millennia of history. One can rent a car and make a pilgrimage across the continent without ever stopping at a border crossing. How do we know we’ve left France and entered Spain? Everything suddenly feels more open, more expansive. If it’s not exactly the feel of big-sky country and lacks the majesty of America’s open spaces, it still no longer feels so small and closed, as it once did traveling the old Europe. There is breathing room now, and no one is quite sure what to do about all of this newly acquired space.

But this much is for sure. There is a new experiment taking place in Europe. The whole of Europe has become a testing ground for rethinking commerce and politics and for re-imagining how people might conduct their lives with one another. The raw figures are daunting and give an idea of the breadth and scope, the sheer magnitude of the experiment. Twenty-five countries—big and small—across Europe have pooled their vast human and natural resources and made at least a partial commitment to share a common destiny. We Americans still think of the European Union as little more than a free-trade zone of sorts, something like the North American Free Trade Agreement (NAFTA) but more advanced. We’re mistaken. It’s much more.

The people of Europe have a common European Parliament with many powers previously reserved to nation-states, a European Court of Justice that supersedes the laws of the respective countries, and a European Commission to regulate trade, commerce, and a hundred and one other things that used to be handled exclusively by national governments. The Union has established its own military arm, a rapid-reaction force. It has agreed to establish a common foreign policy, and, with the ratification of its new constitution, it will have a Europe-wide foreign minister. In the course of the next two years, the twenty-five governments will ratify a Europe-wide constitution, formalizing their union. While there is still plenty of bickering about how much sovereignty should remain with individual nation-states and how much given over to the Union—the United Kingdom being the most reluctant consort in this new marriage—just as there was in the first one hundred years of the American union, like our own grand experiment, the path taken has the air of destiny.

Europeans refuse to call their new union the “United States” of Europe for fear of confusing their experiment with our own two hundred years ago, although there are many parallels. Still, the differences are at least as significant as the likenesses, as we will explore in more depth in the pages that follow. What we are witnessing is the birth of a new political entity and a new commercial force on the world scene. The European Union, what some observers call the “reluctant empire,” is already a looming giant, although still in its infancy. Four hundred and fifty-five million people are citizens of the European Union. They represent nearly 7 percent of the human race. While still fewer in number than China and India—each with a population exceeding 1 billion—the EU already overwhelms the U.S., whose 293 million people constitute 4.6 percent of the human race, and dwarfs Japan, whose 120 million citizens make up less than 2.1 percent of the human population on Earth.
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The European Union is now the largest internal single market as well as the largest trader of goods in the world. The EU is also the world’s largest trader in services. In the year 2000, the EU accounted for 590.8 billion euros, or 24 percent of the total world trade in services, compared to the U.S., who ranked second with 550.9 billion euros and a share of 22 percent. Japan was a distant third, with 201.6 billion and an 8 percent share of the global market.
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Moreover, unlike the United States, which runs on a trade deficit and imports more than it exports, the EU exports more than it imports.
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The European Union’s Gross Domestic Product of $10.5 trillion in 2003 already exceeds the United States’ $10.4 trillion GDP, and as we will see in a later section, even this figure masks additional economic strengths relative to America that are not accounted for in the GDP numbers.
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The bottom line is that the EU’s GDP already comprises nearly 30 percent of the GDP of the world, making the European Union a formidable competitor to America in the global economy.
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(The EU’s GDP is nearly 6.5 times larger than China’s.)
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Corporeal Europe is still being formed. With the prospect of adding an additional four or five countries to the existing twenty-five countries over the course of the next decade, the Union will grow to fill a landmass stretching from Finland to the Mediterranean and from Ireland to the Black Sea. Much of the European Union’s potential depends on its ability to create a streamlined and seamless internal trading market and commercial arena. It is in the early stages of creating a continental-wide transportation network, an integrated electricity and energy network, a common communication grid, a single financial-services market, and a unified regulatory framework for conducting business. The European Union has established what it calls Trans-European Networks (TENs), covering the transport, energy, and telecommunications sectors with the goal of connecting all of Europe under a single state-of-the-art, high-tech grid. The price tag for uniting Europe is expected to reach upwards of $500 billion and will be financed by both government and the private sector.
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Europe-wide educational programs are also being pursued. The European Union has initiated three high-profile educational programs: Socrates, Leonardo da Vinci, and the Youth program. Socrates covers general education from nursery school to adult education. The program establishes common educational projects, encourages student and teacher mobility between EU member countries, and is engaged in efforts to harmonize curricula. Its Erasmus project has provided grants to more than one million European students to study in another member country. The Comenius project has brought more than ten thousand schools together in cooperative education efforts across the EU. The Leonardo da Vinci program has helped more than two hundred thousand young people secure job training in another member country. The Youth program provides young people between the ages of fifteen and twenty-five with opportunities to do volunteer service either locally or in one of the other EU member countries.
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Perhaps the most challenging task on the road to European integration is accommodating the great disparity in income and job skills between workers in the Western and Northern European countries and workers in the new Central, Southern, and Eastern European economies. The entrance into the Union of seventy-five million new citizens from the Eastern and Southern countries has ignited fear in the West of a possible mass influx of cheap labor—both skilled and unskilled—into already beleaguered old Europe economies. There is also the concern that companies doing business in Western Europe will relocate more and more of their manufacturing and service operations in Eastern Europe, where labor costs are considerably lower. That’s already begun to happen.

Gartner, the consulting firm, says that the Czech Republic, Poland, Slovakia, and Hungary are particularly attractive destination sites for Western European companies interested in outsourcing some of their operations to cheaper labor markets. Some companies, like the logistics firm DHL, have built their own operations in Eastern Europe. DHL set up an IT operations center in Prague in 2004.
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Gillette, an American company, announced plans in 2004 to build a $148 million plant in Poland, shifting manufacturing and distribution from Britain and Germany to take advantage of cheaper labor costs. The new manufacturing facility will eventually employ 1,150 workers. As part of the restructuring, Gillette will close two plants in England and cut production and the size of its workforce in its Berlin factory.
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Western Europeans also worry that poor immigrants flocking in from the East will place an additional burden on already overtaxed welfare systems. The fear is so pronounced that most of the fifteen older member nations have already imposed various restrictions to keep Eastern European laborers out of their countries for several years. Eastern Europeans worry that Western European products coming into their economies will undermine domestic producers or raise prices for consumers.

Many other difficulties remain in creating a cohesive internal market across Europe. Still, the positive accomplishments far outnumber the remaining obstacles. Equally important, with English increasingly becoming the lingua franca of Europe—it’s already the language used in many university and graduate school courses, especially in the business and science curricula—Europeans will be able to exchange their labor, goods, and services with an ease approaching that of the internal U.S. market. It will not happen overnight, but the process of integrating Europe into a unified internal market is already well along and will continue to gain momentum over the course of the next twenty-five years or so, when it should approach the level of integration we enjoy and even take for granted in the United States.

To the skeptics—and there are many—who doubt whether all of this is even possible, European leaders point out that, just a few years ago, the doubters, including many of America’s leading economists and political pundits, were convinced that the introduction of a single common currency across the EU would fail. The euro succeeded beyond even the most enthusiastic projection of its supporters and is now stronger than the dollar—trading at $1.27 as of February 2004—and is becoming a rival in world financial circles.
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The Russian Central Bank announced in 2003 that it would transfer some of its foreign reserves from dollars to euros, and even China has begun to make a small shift in favor of the euro.
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Recently, Javad Yarjani, a senior official at the Organization of Petroleum Exporting Countries (OPEC), suggested that its member oil-producing countries might begin selling their oil in euros. After all, Europe is the Middle East’s major trading partner and imports far more oil from the Persian Gulf than America. As mentioned, the EU also enjoys a greater share of global trade. Yarjani suggests that if Europe’s two key oil producers, Norway and the U.K., were to adopt the euro—which is likely—“this might create a momentum to shift the oil pricing system to euros.”
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If that were to happen, oil-importing nations around the world would no longer need dollar reserves to purchase oil, and the demand for dollars could decline significantly, with serious ramifications for the American economy.

America’s growing national debt is largely to blame for a 44 percent rise in the euro and a corresponding 31 percent fall in the dollar between July 2001 and December 2003.
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The International Monetary Fund (IMF) is so concerned about U.S. debt—the result of a rising budget deficit and trade imbalance—that it issued a report warning that if steps weren’t taken to reverse the trend, it could threaten the financial stability of the world economy. IMF economists say that U.S. financial obligations to the rest of the world could be equal to 40 percent of its total economy in just a few years. Economists worry that U.S. borrowing could become so high that it could force up global interest rates, slowing global investment and economic growth.
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