- The Washington Times - Sunday, June 5, 2005

Winston Churchill’s postwar vision of a United States of Europe was shot down last week, the victim of a weak, jobless economy and the fear of losing national sovereignty.

The back-to-back rejection of the European Union’s constitution by the French and the Dutch sent a devastating signal to the EU’s paternalistic, often-arrogant leadership that it was moving much too fast in its rush to give new political powers to a centralized government in Brussels.

The Europeans, after all, were still adjusting to a common currency and a central economic authority that held sway over everything from trade to antitrust issues — and many were unhappy with the results thus far.

A confluence of disparate factors fed the referendum vote to reject the European charter: disgruntlement over immigration levels; trade fears Europe would be opened to further foreign competition; and a crushing tax burden worsened by an increased tax flow from member countries to a new central government.

But Europe’s permanent class of unemployed workers — averaging 9 percent or more — was the common issue that fed the overwhelming rejection of the pact in France and the Netherlands.

The French unemployment rate is 10.2 percent, understandably the No. 1 concern of voters. They poured their grievances into the constitutional referendum, dealing French President Jacques Chirac a withering blow. This after months of worker protests that led last week to a 36-hour rail strike, which can only further weaken a declining economy.

France’s new prime minister, Dominique de Villepin, pledged last week to focus on the unemployment crisis, vowing to “restore the confidence of the French people” in the next 100 days. But there were doubts either Mr. Chirac or Mr. de Villepin understood the cause of Europe’s problems.

The anti-EU charter vote was “a message of concern about the situation in Europe in the face of globalization,” Mr. de Villipin said. But world trade and foreign investment, which he lumped together as “globalization” (something the Euopean left blames for just about everything), are not the causes of France’s troubles, nor those of the European community. Its economic problems stem from oppressive government regulation, taxation, trade protectionism, costly subsidization and an ever-costlier welfare state its workers can no longer afford.

The comparison between Europe’s economy and ours is instructive. Their unemployment rate is between 9 percent and 10 percent, as opposed to 5.2 percent in the United States. Their economic growth rate is between 1 and 2 percent, while ours was more than 4 percent in 2004.

So there are lessons to be learned here, but will Europe ever learn them? We have lowered trade barriers and encouraged foreign investment to our economy’s benefit, selling more than $1 trillion in goods and services abroad last year. We have cut tax rates across the board while Europe’s rates remain among the highest in the industrialized world.

We have, by and large, deregulated much of our economy to encourage new business formation and job creation. Conversely, costly, time-consuming government regulation poses huge obstacles to Europe’s entrepreneurs.

Fear of the unknown and nationalism were also factors in last week’s votes. Many voters said they were not necessarily against the constitution but wanted to slow the process.

“I’m not against a united Europe, but I think it is growing too fast,” one restaurant worker in The Hague was quoted. “At the end of the day, we are always going to have a lesser voice in such a big community, and I’m not sure that’s good thing.”

A united Europe would mean more tax revenue going to Brussels for an ever-expanding bureaucracy, a troubling factor for many voters. “We pay too much,” said Dutch Finance Minister Gerrit Zalm. There were complaints, too, about moving to the euro, the long-overdue common currency that has made economic transactions in the European Union far more efficient. But there were those, like the Dutch, who felt they lost ground economically when they had to give up the gilder for the euro.

Clearly, a Europe clinging to its past and still wrestling with the changes brought about by the EU’s establishment is not ready for the next step. And this may be a good thing, as it gives Europe time to recover from its profound economic illnesses before taking on new challenges.

What does it mean for the United States? In the short term, the vote of no-confidence in Europe’s economic future and doubts about the euro triggered a flow of European investment capital into our stock market. Wall Street, the dollar and the stability of U.S. Treasury bonds remained the world’s safe harbor for nervous European investors and central banks.

We have a lot at stake in how Europe reacts to the political insecurities and anxieties expressed in last week’s resounding votes. A stronger, more vibrant EU means stronger U.S. exports overseas, and that would translate into a stronger bull market for investors both here and throughout Europe.

The best economic advice we can give the Europeans now is this: “Look at what we’re doing here and copy it over there.” I’m betting they’ll be amazed at the results.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally synicated columnist.


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