Europeans, apparently, don’t want any further integration. The Pew Research Center in eight EU countries found that “the public is more doubtful about EU membership and the single currency and is shifting decisively against handing Brussels more power over national budgets.”
I have jut returned from two weeks in Italy. The following comments represent some of the impressions I gathered on the trip.
National divisions are just one reason, although a major one, for the continued failure of the European Union to reach some form of resolution to the ongoing financial crisis. Whether these divisions can be overcome in the longer term is, of course, a concern of many that a unified solution can be achieved.
But, there are many other hurdles that work against moving Europe into some greater form of common union.
So much public attention has been given to the fiscal affairs of the national governments and rightly so. But, there is another aspect to these fiscal affairs that go beyond the ability of the governments to repay their debts. This other aspect is the social framework that has been built up in these countries through the actual spending that has taken place.
I have often discussed some of the structural problems in the United States created by government spending aimed at keeping people employed in the jobs that they have been working in and to build up government payrolls at the local level, as well as at the national level, to keep people employed and happy. The consequences of these kinds of policies include rising levels of under-employment, reaching maybe 20 percent of the working age population, and bloated state and local government budgets supporting excessively generous hiring practices and underfunded pensions.
Well, from what I saw and the people I talked with, when compared with Europe, the United States is a “Scrooge” when it comes to this kind of behavior!
And, if the United States has an un-employment rate a little over 8 percent and an under-employment rate of around 20 percent, what is the situation in Europe where countries face 20 to 25 percent government measured un-employment? What is the level of under-employment in these countries?
In addition, what is the situation in the bloated government bureaucracies and the school systems in these European countries? The university systems in these countries are, to me, frightening.
Another truly amazing thing to me is three-hour lunch hours…mandated!
What about the spread of information technology? This, of course, is one of the major things driving modern society. Read an interesting article that appeared in the New York Times yesterday. “Italy remains well behind most other West European countries in the reach of the Internet….”
I was discussing the use of information technology in the financial field, especially in banking, with a very advanced thinking Italian, someone who has spent quite a few years in America. His comment was that Italy was many years behind the United States banks in adopting modern computer technology to daily banking transactions.
And, everywhere I saw industrial zones created to support manufacturing employment with empty parking lots and houses and business buildings standing uncompleted with nothing around them to indicate that activity would return to them soon.
The one thought I took away from trip was that although Europe has a fiscal crisis to deal with in terms of getting their financial affairs in order, the much bigger problem faced by the Europeans is the need for the reform and restructuring of the way they do things.
Modern technology is being used in these European countries, but the technology is being used to maintain a lifestyle that existed in another century. This is not unlike some radical religious groups that use modern information technology to retain a hold on their medieval social practices.
In my reading of history, the advance of information technology always wins. The advancement may be diverted or delayed for some period of time but the spread of information always triumphs in the end.
The transformation is not easy and will not be easy in the case of Europe. There will need to be much social change along the way and the existing structure of classes, intellectual as well as wealth and business, along with the current philosophies pertaining to labor unions and governments, will put up substantial barriers to the changes that are needed.
An example of this given in the New York Times article quoted above is the efforts made by former Italian prime minister Silvio Berlusconi to protect his media business empire from intrusions of the Internet.
The whole world is going through massive changes and no one group, organization, or nation, is going to be able to avoid the changes. I knew many of the countries in the eurozone were behind the curve in this transition. I have argued that Europe seemed to be devoid of the leaders needed to guide their countries through this period. But, my recent trip has made me more pessimistic about the ability of the European Union to throw off their blinders and actually carry out the reform and restructuring that is needed.
A conclusion like this can only make one more pessimistic about investing in Europe. I like to think of myself as a value investor that invests for the longer term. In terms of Europe, therefore, the longer term, in my view, just got that much longer.