Spreading the word

Thanks to Project Syndicate, my article on why Europe should open its borders to foreign workers has been reprinted in Turkish Weekly, the Japan Times, and the Times of Malta. Please let me know if you see it published anywhere else. Thanks

Spain leads the way for Europe on migration

Spain is leading the way for a humane and common-sense approach to immigration. In 2005, the government allowed illegal immigrants to regularise their status, giving them the right to work legally.

Now, it is encouraging employers to recruit temporary workers from Africa in a bid to discourage Africans from risking their lives trying to reach Spain piled high on flimsy boats. A delegation of Spanish employers arrives in Senegal today to recruit labour for construction work and the summer harvest, the FT reports.

Ideally, borders should be open. But if that is not possible for now, opening up a legal route for migrants to come work is a big step forward.

The case for opening Europe's borders wide to migrant workers

Read my article for Europe's World here

Migrant tax would slash illegal entry into Europe

It is time that Europe’s politicians admitted to voters that governments cannot stop people moving across borders. Despite efforts to build a Fortress Europe, more than a million foreigners bypass its defences each year: some enter covertly; most overstay their visas and work illicitly. While draconian policies do curb migration somewhat, they mostly drive it underground.

That creates huge costs: a humanitarian crisis, with thousands drowning each year trying to reach Europe and thousands more detained; the soaring expense of border controls and bureaucracy; a criminalised people-smuggling industry; an expanding shadow economy, where illegal migrants are vulnerable to exploitation, labour laws are broken and taxes go unpaid; mistrust of politicians who cannot fulfil promises to halt immigration; corroded perceptions of immigrants as law-breakers rather than enterprising people; and the mistreatment of refugees to deter people who want to work from applying for asylum, besmirching our commitment to help those fleeing terror.

These problems are blamed on immigrants, but they are actually due to our immigration controls. Far from protecting society, they undermine law and order, just as Prohibition did more damage to America than drinking ever has. Pragmatic governments ought to legalise and regulate migration instead.

All the more so, since immigrants are not an invading army, but mostly people seeking a better life who are drawn to Europe by the huge demand for workers for low-end jobs which our increasingly well-educated and comfortable citizens do not want. The only way to reconcile aspirations to opportunity for all with the reality of drudgery for some is via immigration.

Migration’s benefits are akin to trade’s. Filipino care workers, Congolese cleaners and Brazilian bar staff are simply service providers who ply their trade abroad – and just as it is often cheaper and mutually beneficial to buy IT services from India, it often makes sense to import menial services that are delivered on the spot.

Moreover, because newcomers are more willing to move to where the jobs are, and to shift jobs as conditions change, they make the economy more flexible and boost growth as Britain’s recent experience shows. And just as women entering the workforce did not cost men jobs, nor do immigrants: they create jobs as they spend wages. Far from competing with native workers, immigrants often complement them. A foreign child minder may enable a doctor to return to work, where hard-working foreign nurses and cleaners enhance her productivity.

Immigrants’ diversity boosts innovation because foreigners with different perspectives and greater drive can help solve problems better. Consider Silicon Valley: Intel, Google and Ebay were all co-founded by immigrants. As China catches up, Europe must open up to foreigners to stay ahead.

Those who claim that tougher measures could stop immigration are delusive. Even if Europe became a police state, its borders would be permeable. Even if the EU built a wall along its vast eastern border, deployed an armada to patrol its southern shores, searched every arriving vehicle and vessel, denied people from developing countries visas, migrants would get through: documents can be forged, people smuggled, officials bribed.

If open borders are politically unacceptable, Europe should create a legal route for people from developing nations to come and work, regulated through an extra payroll tax on foreign workers. This would be transparent and flexible, raise revenue that would highlight migrants’ contribution to society, and give companies an ­incentive to hire, or train, domestic staff.

Even if set relatively high, it would undercut people smugglers and slash illegal immigration. Who would risk death, exploitation or deportation if they could come to work within the law by paying an extra tax? And if foreigners could come and go freely, many would stay only temporarily, since most do not want to leave home for ever. Over time, the tax could be gradually lowered – or raised again if migration led to unexpected problems.

Politicians should have the courage to stop fighting an unwinnable war. Treating immigration as an opportunity, not a threat, would enhance its benefits and mitigate its costs. ­London’s cosmopolitan dynamism shows how a more open Europe could thrive.

Tourists on Tejita Beach help migrants

© Arturo Rodriguez, Spain/The Associated Press.
2007 World Press Photo Contest, 2nd Prize People in the News Stories.

See http://digitaljournalist.org/issue0703/worldpress05.html for this and other photos from the World Press Photo Awards for 2006

The great European metropolis

Ian Buruma writes in today's FT about the elusive quest for a European soul. He remarks:

The most inspiring thing about the EU is the mobility of its citizens, the way Europeans can live and work anywhere they want in Europe. Let there be more Polish builders in Paris, British designers in Berlin, French entrepreneurs in London.

One of the great ironies of the past few decades is the way that London, the capital of a nation that rejected so many European dreams, has become the great European metropolis. People are coming from all over Europe because London offers them freedom to pursue their dreams. These are frequently materialistic and sometimes even base, but altogether they make up something that, for want of a better word, might be called a European soul.

Quite right too. It's a pity that most European leaders see this new mobility as a threat rather than the fantastic opportunity that it is.

Stranded at Europe's door

Europeans are growing accustomed to TV footage of Africans piled on to rickety boats arriving in the Canary Islands. They may be less aware of the thousands of people who are trying to enter Europe from the east.

Trying to hold the line is Ukraine, which detains in prison camps migrants that fail to make it into the EU. They are held in limbo there, with neither money to return home, nor the possibility of building a better life for themselves in Europe.

At the same time, there is a burgeoning trade in smuggling migrants into the EU, with Ukrainian officials bribed to turn a blind eye.

This is yet another example of how Europe's border controls are callous but ineffective - and ultimately counterproductive, since Europe needs migrants to do the jobs that locals no longer want to do.

For those of you who understand French, I highly recommend this superb documentary on what is happening to those stranded at Europe's eastern door, produced by France 2's Envoye Special.

Dying to get in to Europe

I debated whether Europe should open its borders on Radio Netherlands with Manuel Medina Ortega, a Euro-MP for Spain's Socialist Party, Johannes van der Klaauw, the head of mission for UNHCR in Rabat, Morocco, and Vanessa Mock, RN's Brussels correspondent. You can listen to it here.

Europe's huddled masses

Edward Lucas has written a thought-provoking article on migration in Europe in this week's Economist, which is available for non-subscribers on his blog.

Russia does it again

Last year it was gas piped through Ukraine, now it's oil through Belarus - how many times does Russia have to cut off Europe's energy supplies before we wake up to the risks of being dependent on the Kremlin to keep the lights on?

A not-so-warm welcome to the EU for Bulgaria and Romania

Happy New Year!

It is a particularly happy day for the 30 million Bulgarians and Romanians who today join the European Union. Welcome back to the European club.

Unfortunately, the British government, which wisely allowed the citizens of Poland and the 7 other ex-communist countries that joined the EU in 2004 to come work in this country, has bowed to anti-immigration scaremongering and imposed restrictions on Bulgarian and Romanian immigration.

But, just as with the Poles and other East Europeans who have come work here in the past 2 years, Romanian and Bulgarian immigrants would be good for Britain, doing jobs that Britons can't or won't do, and helping the economy to continue growing faster for longer without sparking inflation or raising unemployment, and thus boosting everyone's living standards.

I was interviewed about this on BBC1's Breakfast news show on 31 December. Sorry that the image quality of the first 15 seconds of the clip is very poor; I'll try to sort it out ASAP. Thanks

Shame on Britain and Ireland, hurrah for Sweden and Finland

When eight ex-communist countries joined the EU in 2004, only Britain, Ireland and Sweden allowed their citizens to come work freely. 

On 1 January two more are joining: Bulgaria and Romania. But this time, Britain and Ireland have decided to impose restrictions on the new EU citizens' right to work.

Among rich EU countries, only Sweden and Finland are opening their doors to Bulgarians and Romanians (as are all the ex-communist members, except Hungary). What a pity!

Russia's deadly embrace

I don't usually write about such matters, but I am so shocked and outraged by the assassination of Alexander Litvinenko in London that I feel compelled to comment.

The death of Mr Litvinenko - a bitter foe of Russia's president, Vladimir Putin - bears all the hallmarks of a political murder.

Getting your hands on enough radioactive polonium - the apparent murder weapon - to poison someone requires access to a nuclear reactor or a particle accelerator, according to Professor Dudley Goodhead, of the Medical Research Council & Genome Stability Unit. That narrows the field of potential suspects considerably.

Despite official assurances that they have turned over a new leaf, it is well-documented that Russian spies have made a habit of using sophisticated poisons to eliminate their enemies. Indeed, even if common criminals could somehow have obtained some polonium, why would they bother using such esoteric means to kill Mr Litvinenko when they could more easily have had him stabbed or shot?

In short, although there is no concrete proof as yet, it is certainly reasonable to believe that the Kremlin had a hand in the murder of Mr Litvinenko, who himself pointed the finger at Putin before he died. The Russian authorities certainly had both motive and means, as well as reasons to try to cover their tracks. Pointedly, the SVR, the KGB's new guise, went to the lengths of denying responsibility - not because killing Mr Livninenko was inconceivable or wrong, but because it was said not to be worth the damage to relations with Britain.

How should the West react?

John Thornhill writes in the FT that:

the west should remain open to the Russian people. Western European countries should, if anything, ease visa restrictions for Russian visitors and encourage young Russians to study abroad. EU countries should encourage mutually beneficial business, financial and cultural ties wherever possible.

However, Europe must remain united in the face of any intimidation and not allow the Kremlin to play one country off against another. EU countries should reduce their dependence on Russian energy supplies if Moscow is going to regard them as a political tool. They should continue to denounce human rights abuses in Chechnya – and elsewhere – as being incompatible with the standards of the international organisations to which Russia belongs. And Britain should be firm in prosecuting whoever is responsible for Alexander Litvinenko’s death, no matter where the investigation leads.

Quite right too.

EU fails to mend its protectionist ways

Anti-dumping duties, which unfairly penalise imports that are deemed too cheap, are one of the most pernicious protectionist devices. After all, we ought to be cheering if the cost of imports falls, because it makes the money in our pocket stretch further, not taxing consumers in order to try to prop up less efficient domestic producers.

The good news is that governments' use of anti-dumping has halved over the past four years.

The bad news is that two villains have yet to mend their ways. Despite Peter Mandelson's pledge to reform the EU's protectionist anti-dumping laws, Brussels launched more anti-dumping cases in the first half of this year than in the first half of 2005, as did India. Those two are now the world's biggest anti-dumping users.

For more details, see the Global Trade Protection Report 2006 by Cliff Stevenson of antidumpingpublishing.com

Europe needs a common energy policy: updated

European leaders are still struggling to come to terms with the Dutch and French No votes last year. At least for now, closer political union appears to be on ice. Even so, there is lots the EU could - and should - be getting on with.

For a start, it is about time Europe completed its much-vaunted single market: that means free trade in services as well as goods, and the free movement of all Europeans (not just rich ones).

It is also in Europe's interest, as well as its neighbours', that it expand its haven of prosperity and security east and south, by enlarging the Union where possible and through closer cooperation where not.

And Europe should make the most of its collective voice in trade and environmental policy to kickstart the Doha round and give new momentum to global efforts to insure against the potential of catastrophic climate change.

Another important area where Europe needs to act as one is in energy policy. Europe is sleepwalking into a dangerous dependency on Russian gas that will give a hostile Kremlin huge leverage over the EU. Just this week, the FT reported that:

Nato advisers have warned the military alliance that it needs to guard against any attempt by Russia to set up an “Opec for gas” that would strengthen Moscow’s leverage over Europe.

A confidential study by Nato economics experts, sent to the ambassadors of its 26 member states last week, warned that Russia may be seeking to build a gas cartel including Algeria, Qatar, Libya, the countries of Central Asia and perhaps Iran...

Russia supplies 24 per cent of Europe’s natural gas, with Norway selling 13 per cent and Algeria, a major exporter to Spain and Italy, supplying 10 per cent.

Last week, the International Energy Agency warned of “the possibility of major gas-exporting countries co-ordinating their investment and production plans in order to avoid surplus capacity and to keep gas prices up.”

Also writing in the FT, Fulvio Conti, the boss of Enel, warns that:

Europe is increasingly dependent on external sources – 65 per cent of energy is imported and this is expected to rise to more than 80 per cent in 20 years. Europe is particularly dependent on Russia: the reduction of Russia’s exported gas last January exposed fragility. Gas and electricity prices increased dramatically and there were supply shortages at numerous points throughout the system. This is not a challenge that can be dealt with effectively by 27 independent micro-markets. It has to be met by European companies big enough to negotiate with large suppliers, but must also be met by a united voice. Europe is the world’s second largest energy consumer – the benefits of negotiating with a single voice are obvious.

Scale counts in ensuring future energy security, but so does source diversity. We need to develop new gas supply routes in pipelines and liquefied natural gas with supplier and transit countries, which will require strong European political support. At the same time, we need to look beyond gas by developing renewable energy and clean coal technologies. Europe must also be realistic that nuclear energy will have to play a significant role in the medium term at least.

Europe, take note.

UPDATE: A new poll for the FT by Harris Interactive finds that only 21% of Europeans believe Russia will be a reliable source of oil and gas in the future, while 35% think it won't be.

Europe takes a small step forward

Most people think Europe's single market already exists: it was created way back in 1992, wasn't it? Unfortunately not. While goods are traded freely across borders within Europe, services are not  - and since they account for over two-thirds of the EU economy, Europe's single market is in effect far from complete.

It is certainly good news, then, that the European parliament has finally got around to approving the EU services directive, which goes some way towards liberalising services trade. Depressingly, though, the directive has been so watered down - and huge sectoral exceptions carved out of it - that even now Europe will not operate as a single services market.

This not only makes a mockery of one of the EU's defining aims. It is also a huge missed opportunity for Europe's struggling economies. Removing the remaining protectionist shackles from Europe's hidebound service industries could potentially do more to stimulate growth than any other initiative from Brussels.

Indians have reason to cheer

India's drinkers should raise a glass to Peter Mandelson.

Indians who love Scotch whisky, French wine or Spanish sherry have long had to pay through the nose - or make do with watered down local equivalents - because their government imposes punitive taxes and duties that can raise the price of foreign tipples by as much as 300%.

But Europe's trade commissioner is riding to the rescue: he plans to challenge India's discriminatory taxes on wines and spirits at the WTO.

If the EU wins, he will be the toast of town among Mumbai's champagne-starved stockbrokers. And at least officials at the commerce ministry in Delhi will be able to drown their sorrows with a fine Scotch.

The sky war resumes

Here we go again. The US government has today launched yet another salvo in its long-running conflict with the EU over aircraft subsidies, announcing that it is to file a new complaint at the WTO against European subsidies for Airbus. Before you could say "Boeing", Brussels made clear that it would hit back with its own tit-for-tat complaint. So much for the fragile truce that had held since February.

Given how politicised the Airbus-Boeing war has become on both sides of the Atlantic, it is perhaps surprising that the Bush administration did not file a complaint before the mid-term elections, in time to swing come crucial votes to the Republicans. Perhaps, then, the new WTO complaint is a response to the mood of economic populism that the Democrats were so successful at tapping into.

In any case, it is yet another headache for the WTO: a no-win case that will aggravate both sides and resolve nothing. Most likely, the WTO will find fault with both the US and the EU - and then what?

It is surely too much to hope that America and Europe will stop subsidising their national champions simply because of a slap on the wrist from the WTO. The worry is that the war in the sky could broaden into a ground war too, with each side also taking aim, for instance, at their farm subsidies.

Death on our borders

The International Organisation for Migration estimates that 2,000-3,000 would-be migrants from West Africa have died trying to reach the Canary Islands this year. Others reckon the true death toll is over three times higher. Meanwhile, Spain says 26,000 migrants have actually landed on the islands this year.

How many more people need to die before we realise that our border controls don't work?

US gambling ban is illegal

Online gambling is immoral and illegal - except when it takes place within US states, of course; oh, and interstate betting on horse races is also OK. That is the essence of the US's new Unlawful Gambling Enforcement Act, as clear-cut a case of protectionism as there is.

The EU ought to challenge the new law at the WTO, on behalf of 888.com, partygaming.com, sportingbet.com and all the other online gambling companies that have been dealt a hammer blow by Congress's unfair law.

For sure, WTO rules allow countries to restrict trade for reasons of morality - but only if the restrictions apply equally to all. So if US legislators deem gambling to be wicked and sinful, they are entitled to ban it - but they cannot simply block Americans from betting on non-US websites.

Congress's new law is hypocritical, protectionist - and illegal.

Brussels votes to raise price of shoes

"Grant me chastity and continence, but not yet" - the words are St Augustine's, but they could just as well have been uttered by Peter Mandelson.

The EU's trade commissioner has pledged to reform Brussels' harmful anti-dumping rules - which penalise imports that are deemed to be " too cheap" - to take account of the fact that many of these imports are in fact produced by European companies with factories abroad. There is also the small matter that European consumers actually benefit from low-price imports, as anyone who has bought cheap Chinese shoes can testify.

A review is great news, then - but don't rejoice too fast. Our enlightened representatives in Brussels have today voted to slap duties of 16.5% on shoes made in China and 10% on footwear from Vietnam. The extra duties will last for two years - less than the five years that Mandelson was proposing, but more than free-traders such as Britain, which opposed the anti-dumping duties altogether, wanted.

Mandelson would doubtless argue that EU politics required him to propose these harmful duties. Perhaps. But slapping an unfair tax on cheap Chinese and Vietnamese shoes is an odd way to launch a liberalising reform of Europe's nonsensical anti-dumping rules.

A transatlantic FTA?

Germany's Chancellor, Angela Markel, is making noises about reviving the well-worn idea of a transatlantic free-trade area (FTA), and Susan Schwab, America's top trade negotiator, has welcomed the idea too. So might the proposal finally get off the ground?

Unlikely. Remember that the European Commission negotiates trade deals on behalf of Germany and the other 24 EU member states, and there is still plenty of bad blood between Brussels and Washington over the collapse of the Doha Round, which the Commission blames on the US. And their main bone of contention - agriculture - is precisely what scuppered previous efforts to create a transatlantic FTA.

Merkel knows all this. Her real aim is probably to strengthen her increasingly embattled domestic position by being seen to take the initiative internationally. And it will certainly do her no harm in Washington, with which she has striven to patch up relations after their near-breakdown under her predecessor, Gerhard Schroder.

Inefficient markets

Peas in a Pod™
Fears that Apple aims to become the Microsoft of the music download business by using proprietary technology to lock in the dominance of iTunes have already attracted the scrutiny of Nordic competition watchdogs. So it is a worrying indication of Apple's monopolistic intentions that it is laying legal claim to the word "Pod," threatening to sue companies that use the word as part of their product names for infringing its iPod trademark. It is already taking action against the small start-up that makes the Profit Pod, an infrared scanner used to record activity on video-arcade machines.

But lest Steve Jobs forget, Apple did not invent the word "pod." By trying to appropriate it, he risks alienating millions of people who were once attracted to Apple's apparently upstart brand, as well as fanning the fears of European trustbusters. After all, even Microsoft has not dared to lay claim to the word "Word."

Sony stumbles
The company that became famous for its iconic Walkman continues to stumble in the era of the iPod. It was bad enough that Sony failed to anticipate the appeal of MP3 players and was usurped by Apple in the music-player market; now it may fall behind in games consoles too.

Howard Stringer, the Welsh-American who took charge of the Japanese consumer electronics and entertainment giant last year, has so far ducked the challenge of shaking up Sony's sprawling empire, opting instead to muddle along in the hope that its PlayStation 3 (PS3) games console and its Blu-ray standard for next-generation DVD players will restore its fortunes. But now Sony has had to delay the launch of the PS3 for the second time—until next March in Europe, leaving Microsoft's Xbox 360 and Nintendo's Wii a free run at the important Christmas market. Since the PS3 doubles up as a Blu-ray player—indeed, the delay is the result of problems in producing the blue lasers at the core of the Blu-ray technology—the setback is also a blow in Sony's DVD-standard war with Toshiba's HD-DVD.

This risks becoming a rerun of the VHS-Betamax battle, where Sony's technologically more sophisticated format ended up losing out. Stringer's gamble—that thanks to its superior technology, Sony's PS3 would beat its much cheaper rivals, and that this would propel its pricier Blu-ray format to victory in the DVD war—was always risky, but now it looks foolhardy. Sony's once-vaunted technological prowess looks increasingly dodgy: witness the embarrassing recall by Dell and Apple of over 5m faulty Sony laptop batteries, after videos of them bursting into flames circulated widely on the internet.

As concerns grow that the Blu-ray technology is also not quite up to scratch, Sony cannot afford to pin its recovery hopes on products that are late, expensive and potentially flawed. Unless Stringer embraces root-and-branch reform soon, Sony risks becoming an also-ran.

Can Europe keep growing?
When the US economy sneezes, the rest of the world catches a cold. Or so it used to be said. But not this time, we are told. With Germany, France and Britain all growing faster than America in the second quarter of 2006, Europeans are feeling in fine fettle.

Jean-Claude Trichet, the head of the European Central Bank, seems unperturbed by the mounting evidence of a US slowdown and the increasing risk of a recession next year. He is worried instead that Europe's resurgent growth will spark inflation, and has signalled that he plans to press on with interest rate rises. Officially, Gordon Brown also remains bullish that Britain's economy is hardy enough to shake off a foreign incubus.

But the chances that Europe's economies can escape unscathed from an American recession are slim. For a start, many of the factors that are dragging the US down also weigh on European countries, such as high oil prices driving up inflation and interest rates, thereby threatening to prick many countries' house-price bubbles.

What's more, a US recession would soon knock Asia's export-led economies and thus deal a double blow to Germany and other European countries that remain dependent on export growth. Although Britain may initially appear more robust, it would surely suffer from a simultaneous slowdown in the US, Asia and the eurozone.

Worse, the ECB's complacency about the risk of contagion from America suggests that it will continue to raise interest rates—thereby also heightening the risk of a dollar collapse, and hence a growth-choking surge of the euro—until it is too late to prevent a eurozone recession.

And with deficits in Germany, France and Britain already around 3 per cent of GDP, there would appear to be little scope for fiscal stimulus either.

Despite this gloomy outlook, the Dow is back near its record high, while European and Asian markets have also rebounded strongly. Optimistic investors appear to be betting that if US interest rates have peaked, this is positive for corporate profits and doubly so for share prices.

But this is only part of the picture. If the reason interest rates are now expected to be lower than was previously thought is that the economy is slowing, the prospect of recession will hit companies' earnings far more than lower interest rates will boost them. That can hardly be positive for share prices.

Mandelson's weasel words

Doha is not yet dead and buried, but already the European Union is rushing to pursue new bilateral trade agreements instead.

We should go beyond the EU’s existing bilateral free trade agreements, by setting out the case for new free trade agreements designed to deliver more open markets and fairer trading conditions in new areas of growth, particularly in Asia.

says Peter Mandelson, the EU's trade commissioner. India, South Korea and the ASEAN countries are already said to be in his sights.

The EU likes to pretend that it is the champion of multilateralism and the WTO. Indeed, Mandelson insists that "there will be no European retreat from multilateralism".

But this is nonsense. The EU has already signed more bilateral and regional trade agreements than any other country or trade bloc - far more than the US, for instance. With "friends" like the EU, no wonder the WTO is in dire straits.

Migration madness

As the great and the good gather in New York for the United Nations' jamboree on international migration, Spain's decision to expel 1,000 illegal migrants back to Senegal reminds us that our current immigration system is creaking at the seams.

Spain has had one of the most liberal attitudes to immigration in Europe, perhaps because Spaniards remember that until recently poverty forced them to seek work abroad too. Last year, it chose to recognise reality by granting an amnesty to illegal immigrants, giving them temporary-work permits instead of pretending they didn't exist, and thus bringing them into the formal economy where legal rights are respected. But the move was widely criticised by Spain's European partners, who prefer a more hardline approach of expelling the illegal immigrants they actually manage to catch. Now it seems that Spain is falling into line with the European mainstream.

That is a pity. Spain's dynamic economy has outpaced the rest of Europe's for many years now. The influx of immigrants has helped to prolong this long boom, which has coincided with a fall in unemployment for native Spaniards. Africans want to work and Spain has work to be done: it ought to be a perfect match.

Trying to prevent the global labour market matching workers to jobs is not only bad for Spain's economy. It is also unlikely to succeed: the rewards from crossing borders to work are such that the migrants will keep coming. Worse, the harder Spain cracks down on illegal migration, the more it will drive people underground, fostering criminality and undermining the rule of law.

There is surely a better way, as I discuss in greater detail in my new book.

In the mean time, spare a thought for the poor Africans who are to be deported solely for the crime of aspiring to work hard and better themselves. It is what some would call the American Dream, and which ought to be Europe's apiration too.

If we are so proud of our European way of life, why are we so desperate to prevent others sharing it?

America alone is not to blame for Doha collapse

The world's trade negotiators cannot seem to agree on much these days, but on one thing there is near-unanimity: the United States is responsible for the collapse of the WTO's Doha Round.

Peter Mandelson, the EU's trade commissioner, told the FT:

“If the US continues to demand dollar-for-dollar compensation in market access [cutting agricultural tariffs] for reducing domestic support, no one in the developing world will ever buy that and the EU will not either.”

Kamal Nath, India's fork-tongued commerce minister, said of the US:

“Everybody put something on the table except one country who said ‘we can’t see anything on the table’.”

This is nonsense. Whenever negotiations fail, all sides must take some of the blame. And the US, for good reasons and bad, is guilty mainly of being too ambitious to free up world trade - which is meant to be what the WTO is about.

For sure, America's agricultural subsidies are harmful and wasteful, but the US was prepared to slash them if other countries were willing to lower their farm tariffs, thereby giving its farmers access to new export markets. Multilateral trade negotiations are never pretty, but they have the potential to harness exporters' interests to overcome the lobbying power of producers that fear foreign competition.

But the likes of Nath were not interested in a meaningful Doha agreement; they just wanted to entrench India's farm and manufacturing protectionism, which hobbles the country rather than helping it. India's new-found success, after all, is in the IT sector, which the government has not yet got round to "protect".   

The flexibility that the EU and India wanted the US to show was a willingness to settle for the status quo rather than pursue the benefits of freer trade. The main culprits for Doha's failure are those who refused to budge on freeing trade, not those who set their aim too high. We may all come to pay the price for their cowardice.

Inefficient markets

Stagflation lite
US interest rates are already 5.25 per cent, euro rates are set to rise again on 3rd August, the next move in British rates looks likely to be up, and as deflation recedes, even Japan has finally raised rates. After years of borrowing cheap to take ever more exotic speculative gambles, investors are rediscovering risk and retrenching. This is not yet a bear market. The Dow, the FTSE and Morgan Stanley's international stock market index remain up so far this year—just. But markets may tumble once people realise that even in a more flexible and globalised economy, higher energy prices eventually feed through into higher inflation and lower growth. To keep a lid on rising prices, interest rates may have to rise much further than previously expected, pricking bubbly house prices and hurting heavily indebted consumers. Though the prospect of higher inflation and slower growth sounds like a rerun of the 1970s, it is unlikely to be that bad—rather what US economist Nouriel Roubini calls "stagflation lite."

20:20:20 vision to save Doha
The leaders of the world's most powerful economies—the US, the EU, Canada, China, India, Brazil and Mexico—have tried to break the deadlock in the Doha round of world trade talks by setting a mid-August deadline for reaching an ambitious and balanced framework agreement. Trade negotiators have been instructed to stop stonewalling and seek compromises instead, while Pascal Lamy, the WTO's boss, has received a mandate to bang heads together in the marathon negotiating sessions that doubtless lie ahead.

The main bones of contention remain the EU's high farm tariffs, the US's hefty agricultural subsidies and the steep industrial import duties of Brazil, India and other developing countries. In June, Lamy floated a 20:20:20 formula for a possible agreement, whereby the US would cap its farm subsidies at $20bn a year, developing countries would limit their industrial goods tariffs to 20 per cent and the EU would accept a proposal by the Group of 20 poor countries to cut its agricultural tariffs by an average of 54 per cent. But now that he has the public backing of all the big players, Lamy should aim higher.

An ambitious deal would not only bring bigger benefits, especially for developing countries; it may also be easier to sell politically. A modest deal would still be tough, since EU and US farmers will fight tooth and nail against any cut in agricultural support, but it would offer little for exporters to get excited about. They might prefer to spend their political capital on more rewarding bilateral trade deals instead. But a more ambitious deal would not only make cuts in US farm subsidies easier to swallow, by giving US farmers new export opportunities in Europe and elsewhere. It would also give US and EU exporters of manufactures and services eyeing up new markets in India and China something to fight for.

EU populism 1: mobile operators
Seldom does the Daily Mail say something positive about Europe, let alone an EU commissioner from Luxembourg who proposes to impose on British business new regulations described by one executive as "close to socialism." Yet the Mail has been singing the praises of Viviane Reding, the EU's telecoms commissioner, for her plans to slash the cost of using mobile phones abroad. It's a pity that Reding's proposals are half-baked. Mobile operators certainly make a packet from the "roaming" fees levied on phone calls made and received abroad, but Britain's mobile telecoms market is generally highly competitive. Prices continue to fall, and new operators, such as Tesco and easymobile, keep established players such as Orange and T-Mobile on their toes. Since most of their customers primarily use their phones within Britain, it is normal, and perfectly legitimate, that operators have until now focused their price-cutting on domestic charges. Besides, even before Reding first announced her plans, Vodafone had started to target customers who use their phone abroad a lot with cheaper prices through its Passport scheme. But despite the evidence that competition is working well, Reding felt compelled to intervene—in a potentially very damaging way. She proposes to set arbitrary caps on both wholesale and retail roaming prices, in effect gumming up the rapidly evolving mobile market by making it a regulated utility. Her plans, which still need the approval of the European parliament and the EU's 25 countries, should be roundly rejected. Where's the Mail when you need it to attack barmy Brussels initiatives?

EU populism 2: Microsoft
Reding is not the only EU commissioner who has succumbed to misguided populism. Neelie Kroes, the formidable competition commissioner, has made a mockery of due process by fining Microsoft €280.5m (£193m) for failing to comply with an antitrust judgement against it, the first such financial penalty the EU has imposed. She is promising even stiffer fines in the future. Kroes may be right that Microsoft has exploited the quasi-monopoly of its Windows operating system to crush competitors in related markets, but she is jumping the gun by fining it. The European court of justice, which has already struck down several high-profile EU antitrust decisions, is still considering Microsoft's appeal. Besides, Microsoft has stuck to the timetable agreed with the commission for handing over the technical information about Windows that rival firms need to write software that works well with it.

Dump anti-dumping duties

Peter Mandelson, the EU's trade commissioner, has announced a review of anti-dumping measures. These seek to protect Europeans from imports that the Commission deems unfairly cheap. Personally, I think low-cost foreign products are one of the boons of globalisation - allowing the pound in your pocket to stretch further - as well as being particularly pro-poor, since the dirt-cheap basic goods that the likes of China produce allow poorer people to enjoy a much higher standard of living. Unfortunately, Mandelson is not questioning the flawed protectionist premise behind anti-dumping duties. He just wants to mitigate the harm they do to European companies with investments abroad.

He has a point. Anti-dumping measures are not only bad for European consumers; they are also increasingly damaging to European companies. The likes of Adidas, for example, make most of their shoes in Asia, so when the EU seeks to protect Italian shoe-makers from competition from cheap Asian footwear, it also hurts the German sportswear company. Anti-dumping duties also hit European retailers that source their stock in affected countries. In fact, the biggest beneficiaries of the EU's anti-dumping measures against China are often China's higher-cost competitors in South-East Asia rather than much-higher-cost manufacturers in, say, Italy.

The Commission is today holding hearings (behind closed doors) on the anti-dumping duties imposed on shoes made in China and Vietnam ahead of Mandelson's trip to China next week. It is surely too much to hope that the EU will finally see sense and consign its absurd battle against cheap imports to the dustbin of history.

No-voters score own goal against Europe

Tony Blair must be thanking his lucky stars. The British prime minister never wanted to fight a referendum campaign on the European Union constitutional treaty that he stood a good chance of losing. Now, thanks to the No votes in France and the Netherlands, it looks like he will be spared the ordeal. When, in April 2004, he caved in to demands for a referendum, it looked like a gamble that would take Europe off the agenda in this year's election but potentially destroy his premiership shortly thereafter. Now it looks like a stroke of genius. But even so, Mr Blair, and more importantly Britain, will not escape unscathed from the aftermath of the No votes.

For a start, the constitutional treaty was a triumph of British diplomacy. It put paid to dreams of a federal European superstate, making clear that the EU was and would remain a union of independent nation states that chose to co-operate to varying degrees in different areas where it suited them. It anchored Britain, if not at the heart, at least in the mainstream of European politics, with its relative importance, economic success and defence capabilities offsetting the loss of influence from its non-membership of the euro and its lukewarm attitude towards closer European integration. It made possible greater co-operation in defence and foreign affairs without undermining Nato or circumscribing Britain's ability to pursue its own policies where the EU could not agree a common position. It made big steps towards common EU policies on immigration and asylum but left Britain the right to opt in or out of them. It opened the door to the further enlargement of the EU, thereby spreading stability and prosperity east and south and diluting French and German influence over the EU's direction. It contained significant reforms to make the EU more effective, notably the appointment of a permanent president of the European Council to drive forward the agenda of national governments rather than that of the European Commission. And it would have made the EU more democratic, by giving national parliaments more say over EU legislation and creating a citizens' initiative right.

Britain is likely to suffer from the ensuing crisis in the EU. Jacques Chirac, France's president, has interpreted the French No vote not as a rejection of his stale and bankrupt leadership but as a protest against what is seen as the threat to France's social and economic model from globalisation and the liberalising forces in the EU. And while France may no longer lead in Europe as it once did, it can usually marshal a coalition to block reform.

In March, Mr Chirac had already blocked the EU's proposed services directive, which would finally create a single market in services which account for 70 per cent of the EU economy and boost jobs and growth. Hopes that it might be revived soon have almost certainly been dashed. This is a particular blow for British business, whose advantage in media, law, accountancy and banking meant it had much to gain from liberalisation. Britain will also suffer from the likely stalling of economic reform in France, Germany and elsewhere, which will make the European Central Bank even more reluctant to cut euro interest rates: both will cramp economic growth in the EU, which accounts for over half Britain's exports.

The French No will also make the forthcoming EU budget negotiations even more acrimonious. Britain will come under immense pressure to give up its budget rebate, which will put it at loggerheads with the other 24 members of the EU. At the same time, France's opposition to reforming the Common Agricultural Policy, an important British objective, will harden. And if France and others refuse to agree to CAP reform, prospects for the Doha round of negotiations at the World Trade Organisation look bleak.

Indeed, protectionist pressures in Europe are already rising. Peter Mandelson, the EU's trade commissioner has been forced to threaten restrictions on Chinese textile imports under pressure from Paris.

The French No vote will lead to a prolonged period of stagnation and bitterness that will harm Britain's interests in Europe. It also deprives Mr Blair of the chance of lancing the boil of British euroscepticism. An effective, broad-based Yes campaign could have won a referendum next year, securing Britain's position in Europe and adding to Mr Blair's legacy. The battle not fought may indeed have saved Mr Blair from a humiliating defeat. It has also deprived him of a crowning triumph.

Europe's no basket case

“Shock! Horror! Cato Institute declares American capitalism superior to European social democracy.” That was my cynical initial reaction to Cowboy Capitalism: European Myths, American Reality, a new book published by the free-market Washington, DC-based think-tank that comes recommended by the usual right-wing suspects: Milton Friedman, James Buchanan and Henry Paulson, the boss of Goldman Sachs.

But my first reaction was slightly unfair. Cowboy Capitalism is written by a German journalist, Olaf Gersemann, and was originally intended for a German audience. Its aim was to shake Germans' complacent assumptions about the superiority of their economic model and dispel some of the commonly believed myths about the weaknesses of the US economy. There is no denying that Germany's economy faces serious problems - and the German edition of this book is an important contribution to the debate about how the country should reform.

But the newly published and expanded American edition has a much more ambitious goal. It seeks to demonstrate that the US economy is not only much more successful at delivering higher living standards and employment than Europe's, but that it does so without causing greater injustice and insecurity. As Gersemann puts it, “The message is simple: While US-style capitalism may or may not have delivered results to be proud of, its performance, as measured by economic and social indicators, has clearly been superior to that of its continental counterparts.” Unfortunately for him, he fails to prove either point convincingly. Repeatedly, when weighing up the evidence, he gives America the benefit of the doubt, while interpreting the facts about Europe in the darkest light.

Consider his dramatic opening paragraph: “Over the last 25 years the US economy has enjoyed an average annual real growth rate of 2.9 percent. That's 55 percent more than the German economy mustered, 48 percent more than in France.” Game, set and match to Gersemann? Hardly. America's population is growing by some 1% a year, while Europe's is broadly stable, so comparing GDP growth rates tell us little about how well each economy is doing at delivering the goods for its citizens. A better yardstick is how fast living standards are rising, for which the growth in GDP per person is a decent proxy. According to my calculations from the IMF's World Economic Outlook, GDP per person in the US rose by 53.7 percent over the past 25 years - an average of 1.7 percent a year - exactly the same growth rate as in Germany and France, and less than the 2 percent annual rise recorded in Italy.

Admittedly, Germany's economy, the original subject of Gersemann's book, has performed poorly in recent years as it struggles with the burden of a botched reunification and the straitjacket of outdated regulations. Over the past seven years, GDP per person in Germany has risen by an average of only 1.3 percent a year, compared with 2.1 percent in the US. But over the same period, France's economy has notched up gains of 2 percent a year, a statistical deadheat with the US. So it is too soon to write off European social democracy on the basis of GDP statistics alone.

On the contrary. US statistical methods distort the comparison in America's favour, notably by accounting differently for firms' spending on information technology. As The Economist, hardly a cheerleader for social democracy, notes in its latest survey of the world economy, studies suggest that Europe's annual GDP growth would be almost half a percentage point higher if it were measured in the same way as America's. Presto - Europe is doing as well as, or even better than, America.

America's economic performance in recent years has also been artificially inflated by an unsustainable fall in its saving rate - driven first by the stockmarket bubble and sustained by the subsequent housing market bubble - which has temporarily boosted GDP growth. When the US saving rate eventually rises, and growth slows, America's performance will look even less impressive. Europe's growth rate, on the other hand, is likely to improve as its saving rate falls and it reforms its labour and product markets. So Gersemann's claim that “looking forward, the picture for the United States looks far brighter than for the continental European countries” is highly dubious.

Nor is it clear than even in absolute terms, America's economy performs better than Europe. True, according to OECD figures, France's GDP per person in 2002 was 76% of the US figure, Germany's 72% and Italy's 71%, so that, measured in GDP terms, living standards in Europe appear lower. But comparing GDP per hour worked, France's average productivity levels are 113% of America's, Germany's 94% and Italy's 93%, so European workers perform at least as well as their US counterparts. Part of the reason why America's GDP per person is higher than Europe's is that more Europeans are involuntarily unemployed. But most of the gap - according to calculations by the Conference Board, a US business lobby that is scarcely a fan of European ways - is due to Europeans' shorter working hours. Since the aim of life is happiness, not maximising GDP, and to the extent that Europeans are choosing to work less and enjoy more leisure as they become more productive, rather than slaving away all day at the office, this is a perfectly valid lifestyle choice that does not imply that Europe's economy is inferior to America's.

It is simply not true that Europe is a basket case. Nor, therefore, is it true that it needs to remodel itself along American lines - smaller government, lower taxes, less regulation -in order to prosper. Just look at countries like Sweden and Finland that have high taxes, big governments, large welfare states and stringent regulations, yet continue to prosper. They consistently top rankings of countries where it is good to do business, attract huge amounts of foreign investment to match, are masters at pioneering new technologies, and enjoy an enviably high quality of life.

Unfortunately, some European countries have shockingly high unemployment rates - and this is a scourge for both the jobless and the economy as a whole, because valuable talent is going to waste. Whereas the US jobless rate is 5.4%, Italy's is 8.5%, France's is 9.9% and Germany's is 10.7%. Worse, long-term unemployment is much higher than in America, especially in regions such as eastern Germany and southern Italy.

Clearly, France, Germany and Italy need to implement reforms that reduce involuntary unemployment. But there is no basis for Gersemann's assertion that they must deregulate their labour markets along American lines to do so. Well-devised regulations and active labour market policies can boost workers' conditions and security without costing jobs. That is how highly regulated Denmark and Sweden enjoy higher employment rates than America (and similar unemployment rates) without the wrenching insecurity of the US labour market, where workers fear losing their healthcare and pensions if they are fired or if their company falls on hard times.

For a German audience, Gersemann's book is a welcome antidote to lazy anti-American views. But his new edition for the US market simply panders to the prejudices of its right-wing publishers. If only his analysis of the United States was as trenchantly sceptical as his analysis of Europe, he might have written a more balanced - and more persuasive - book.

Disaster relief

It goes without saying that George W. Bush is not loved in Europe. Even before the Iraq war raised animosity toward him to fever pitch, the perceived stupidity, ignorance, and arrogance of the "Texan cowboy" had gone down badly across the Atlantic. His evangelical Christian beliefs do not sit well with mostly secular Europeans. His assertion of U.S. exceptionalism sticks in the craw. His contemptuous dismissal of the United Nations has angered even those Europeans who normally favor a strong alliance with the United States. So two days after the presidential election, when the Daily Mirror ran a front page picture of Bush next to the headline, "How can 59,054,087 people be so dumb?," it was widely assumed that the paper was reflecting popular sentiment in this part of the world.

And it was speaking for most Europeans--just not for the Europeans who matter most. In France, Norway, Holland, Spain, Germany, Italy, and Britain, those surveyed preferred Kerry by ludicrously large margins that reached, in some countries, as high as eleven to one. (Only in Poland did researchers find a slim plurality of 31 to 26 for Bush.) But if the European public was rooting for Kerry, the preferences of European leaders were another matter entirely. And there is reason to suspect that, privately, most are relieved that Bush won reelection. Why? Because a Kerry victory was neither in the interests of those leaders (like Tony Blair) who have aligned themselves with Bush, nor to the advantage of antiwar leaders (like Jacques Chirac and Gerhard Schroder) who would have had to become more involved in war-torn Iraq if Kerry had won.

Start with Blair. Perhaps to appease those in the ruling Labor Party who fear they could pay a heavy price for their leader's perceived closeness to the unpopular U.S. president in the British general election expected next year, some in Blair's circle hinted, prior to last Tuesday, that the prime minister was rooting for Kerry. But the truth is that a Kerry victory would have left Blair dangerously exposed, with his two closest allies on Iraq, Bush and Jose Maria Aznar of Spain, going down to defeat in the span of seven months.Blair would have found it even harder to defend an already-unpopular war to his constituents if the new man in the White House admitted the war was a mistake. Italy's Silvio Berlusconi and Poland's Aleksander Kwasniewski, having both cast their lots with Bush on Iraq, would also likely have been reluctant to see him go.

But the consequences of a Kerry victory would have been least attractive for antiwar leaders like Chirac, Schroder, and Jose Luis Rodriguez Zapatero, Spain's new prime minister. Don't be fooled by the statement of Hubert Vedrine, the French foreign minister, who said that following the U.S. election there is "a kind of hangover in global opinion ... just about all peoples wanted a change." The central plank of Kerry's plan for improving the situation in Iraq was to "internationalize" it--that is, to get France, Germany, and other countries involved so as to reduce the military and financial burden on the United States and enhance the legitimacy of American-led operations in the country. Such pressure from a freshly elected U.S. president who had made so much of the vital need for America to consult and value its European allies would have been hard for Chirac, Schroder, and Zapatero to resist. To reject Kerry's entreaties would not only poison relations with the new president; it would also confirm what most Republicans believe--that France and Germany are simply not reliable allies.

Yet for all the good will that Kerry would have enjoyed among European voters--for the simple reasons that he is not Bush and pays lip service to things they cherish, such as the need to combat climate change--there would have been little appetite for getting involved in the quagmire that Iraq has become. Neither Chirac nor Schroder are strong leaders; both are unpopular and are known more for their opportunism than their willingness to go out on a limb for their principles. Neither would have relished the thorny dilemma that a Kerry victory would have posed. Muddling along with Bush is politically safer--and therefore preferable.

And beyond Iraq, Bush's hardline unilateralism has proven to be a powerful tool for Chirac and Schroder. His black-and-white rhetoric--"you're either with or against us"--provides a much better foil for European leaders than Kerry's consensus-seeking style. As a result, those who dream of constructing a European counterweight to American power no doubt took succor from Bush's victory. The more Bush is seen to ignore Europe's views, the greater the potential demand for a common European response that America cannot afford to ignore. François Bayrou, the head of France's center-right Union for French Democracy party, probably spoke for many when he said after the election, "Confronted with a more determined America, Europe must bestrong." In short, a majority of ordinary Europeans genuinely mourned Kerry's loss. But many, perhaps most, of their leaders did not.

Fox News: Who's 'zooming' who? Europe or the US?

Europe's mighty economy

The bubble may have burst, but the hubris lives on. Despite Bush administration concerns, expressed at the G-8 summit of leading industrialized countries this week, that economic weakness is spreading throughout the globe, Americans still routinely boast that their economy beats the socks off the rest of the world. Japan? A write-off. Europe? A basket case. China? A threat, perhaps, but still a distant one. While others stumble along, the United States races ahead. After all, President Bush never ceases to reassure Americans that "the U.S. economy is the strongest and most resilient economy in the world."

To be sure, even Panglossians concede that the U.S. economy has had a few problems of late: the odd multibillion-dollar bankruptcy, a significant decline in stock prices, even a mild recession. But such hiccups, we are assured, are transitory. America's economy is fundamentally sound. Money is cheap, consumers continue to indulge, and more tax cuts are in the pipeline. Supercharged, productivity-led growth will soon resume. Europe's condition, by contrast, seems chronic. Weighed down by high taxes, throttled by endless red tape, held back by inept policymakers, it staggers lamely on. Only 18 months ago, crow American officials and businessmen, all the talk was that 2002 would be Europe's year, as the benefits of the euro took hold--yet, once again, the U.S. economy outperformed its Atlantic competitors.

The lesson could not be clearer. America's economic model is triumphant. Government is the problem, not the solution. Markets know best. The rest of the world must adopt American-style capitalism or face inevitable decline. Bush administration officials, from the president on down, hold this as an article of faith. Even liberal pundits seem convinced. As Thomas Friedman, the globe-trotting foreign affairs columnist for The New York Times, put it in his inimitable faux-naif way in The Lexus and the Olive Tree, "Through the process of globalization everyone is forced toward America's gas station. If you are not an American and don't know how to pump your own gas, I suggest you learn."

Pause for a second. Allow some awkward facts to intrude. Which economy has performed better in recent years--Europe's or America's? Surprise: According to the International Monetary Fund, an institution more often accused of imposing Washington's ways than of knocking them, Europe's has. Over the past three years, living standards, as measured by GDP per person, have risen by 5.8 percent in the European Union but by only 1 percent in the United States. An unfair comparison, perhaps, given America's recent recession? Then look at how the European Union and the United States size up since 1995, a period that includes the go-go late '90s, when America apparently advanced by leaps and bounds. While living standards in the United States have risen by a healthy 16.1 percent over the past eight years, they are up by 18.3 percent in the European Union. Another statistical sleight of hand? Not at all. Pick any year between 1995 and 2000 as your starting point, and the conclusion is the same: Europe's economy has outperformed America's.

To be fair, on a different measure, the United States has outpaced Europe. Its economy has grown by an average of 3.2 percent per year since 1995, whereas Europe's economy has swelled by only 2.3 percent. These headline figures transfix pundits and policymakers alike. But this apparent success is deceptive. Not only are U.S. growth figures inflated because American number-crunchers have done more than their European counterparts to take into account improvements in the quality of goods and services, but America's population is also growing much faster than Europe's. It has increased by nearly one-tenth in the past eight years, whereas Europe's population has scarcely grown at all. So, although America's pie is growing faster than Europe's, so too is the number of mouths it has to feed. Most people, though, care about higher living standards, not higher economic growth. If size were all that mattered, the United States could simply annex Canada and, presto, its economy would be larger, whether people in Peoria felt any better or not.

U.S. economic triumphalism is based on more than just GDP growth, of course. Boosters claim that it has enjoyed markedly faster productivity growth, too. Really? It is tough enough to measure how fast productivity is growing in the United States--remember all those wrangles about whether the step up in productivity in the late '90s was a giant leap, a modest bounce, or an illusion. International comparisons are harder still. Even so, the Conference Board, a New York-based business-research group that is hardly a fan of European ways, has taken a stab at it. Their figures show that, although the average U.S. labor-productivity growth of 1.9 percent per year since 1995 exceeds the EU average of 1.3 percent, five individual European countries have done better than the United States. Belgium managed 2.2 percent per year, Austria 2.4 percent, Finland 2.6 percent, Greece 3.2 percent, and Ireland 5.1 percent. If you take a longer time span, 1990 to 2002, not only does the European Union as a whole outpace the United States, so do ten of the 14 individual EU member states for which statistics are available. (The Conference Board does not include figures for Luxembourg.)

Not only is productivity growth higher in several European countries than in the United States--so too are absolute productivity levels. The average American produces $38.83 of output per hour, measured in 1999 dollars, according to the Conference Board. Average productivity in the European Union is still 8 percent less, largely because of lower productivity in Britain, Spain, Greece, and Portugal--although the gap has closed over the past decade. But six European countries have overtaken the United States: Germany, the Netherlands, Ireland, France, Belgium, and Norway, where output per hour is $45.55, over one-sixth higher than in the United States.

Advocates of U.S. ways could point out--correctly--that, even though those six European countries enjoy higher average productivity levels than the United States, they still have lower output per person. One reason is that less of the population works, by choice or because of higher unemployment, in each of those countries except Norway and the Netherlands. But the main reason is that Europeans work shorter hours. In some cases, they may be compelled to do so by law: In France, for instance, legislation limits many employees' working weeks to 35 hours. But, typically, they choose to do so. Whereas American workers toil ever longer hours, Europeans prefer to take more time off as they get richer. Working more to earn more is a perfectly valid lifestyle choice. But one should not conclude that Americans' higher output is a result of their greater efficiency, when it mostly reflects greater toil.

Where the U.S. economy is really said to come into its own, though, is in its ability to create jobs. Many of them may be low-paying--indeed, America's minimum-wage workers typically earn less than Germans receive in unemployment benefits--but at least the United States does not suffer the scourge of mass unemployment that Europe does. Yet Europe is not the unemployment black hole it is made out to be. Although joblessness is shockingly high in some countries, it is lower in others--lower even than in the United States in seven of the 15 countries that make up the European Union.

The myth of U.S. economic exceptionalism warps expectations of the future as well. Most American economists, including members of the White House's Council of Economic Advisers, think prospects for the U.S. economy over the next few years are brighter than Europe's. But there is good reason to believe they will be proved wrong. Why? Because, while Americans harp on about Europe's structural problems, they turn a blind eye to the unsustainable imbalances in their own economy.

There is no denying that Europe has its problems. It is in a cyclical funk. Its biggest economy, Germany, is still struggling with the burden of reunification--which eats up 5 percent of national income each year--and is weighed down by outdated labor restrictions. Although European leaders vowed at their summit in Lisbon in March 2000 to make the European Union the world's most competitive and dynamic economy by 2010, many of the key reforms they announced are still on paper, waiting to be approved.

But none of this means Europe is a basket case. A cyclical downturn does not imply long-term decline. Germany, remember, still has higher productivity levels than the United States. Although the Lisbon process is depressingly incomplete, the ultimate destination is not in doubt.

Nor are Europe's more stringent labor-market regulations (which vary widely from country to country) as great a hindrance to growth as they are made out to be. Of course, some may reduce productivity. They certainly impose social costs on people needlessly made redundant. If they raise the cost of hiring workers, companies have to recoup this higher cost by driving workers harder or holding down their wages. But, once this one-off adjustment has been made and companies' profitability is restored, that's it. Just as a one-off hike in sales tax may dent consumption but would not cause a downward spiral in consumer spending, so too tougher labor-market regulations do not cause the economy to continue going down the tubes, since companies respond.

Admittedly, rigid laws can also make it harder for an economy to cope with change. If they impede declining industries from shedding workers, they may slow the growth of expanding ones--and thus the growth of the economy as a whole. But, even though this loss of flexibility may ratchet up unemployment and slow economic growth somewhat, it is not the downward spiral critics fear.

After all, Europe's strict labor laws have existed for years. Despite them, as we have seen, many European economies have outperformed America's. What's more, they are being reformed. The German government has announced ambitious plans to loosen job protection and cut unemployment benefits. France, Spain, and Italy have all made part-time work much easier. Why, then, given the changes in the works, should these regulations suddenly condemn Europe to stagnation over the next few years?

Europe's higher taxes also are not as big a burden as they are made out to be. Undeniably, at some point, taxes get so high that they dampen economic growth. But it should be obvious that, if taxes are spent well, they can boost an economy's productivity. Well-educated, healthy workers--and trains that get them to work on time--are pluses. Fans of small government point out that Ireland's low-tax economy has grown the fastest in Europe since 1995 and Germany's high-tax economy the slowest. But Finland, whose government takes half its citizens' incomes in tax (far more than Germany's does) comes in just behind Ireland (and Luxembourg) in the growth-league table--and far ahead of the United States. Another relatively low-tax economy, Britain, came in ninth out of the EU's 15 countries. Look again at the list of five countries that have notched up faster productivity growth than the United States since 1995: Belgium, Austria, Finland, Greece, and Ireland. Consider the six that have higher productivity levels: Germany, the Netherlands, Ireland, France, Belgium, and Norway. Only Ireland is a low-tax economy.

The truth about Europe is that its weaknesses are not as big as they seem--and its advantages are underplayed. Obscured by all the cyclical gloom, Europe's new common currency, the euro, is already working its magic. Soaring cross-border trade and investment within the euro-zone are melding individual economies into one. Germany trades one-sixth more of its economy with its European partners than it did before the euro's launch in 1999; France, one-eighth more. Cross-border investment within the euro-zone quadrupled in the first two years of the new currency as companies restructured their national operations along continental lines. The long-term boost to growth from the creation of a genuine single market with a single currency will be huge: Just look at how the U.S. economy took off in the last quarter of the nineteenth century and the first quarter of the twentieth.

Ironically, the biggest threat to Europe's resurgence is not homegrown. It is that America's unsustainably unbalanced economy will finally crash, dragging the rest of the world down with it. America's brief recession has not purged the excesses of the bubble years. The U.S. economy is still awash with excess capacity from the investment splurge of the late '90s. Americans continue to live beyond their means. The gaping U.S. current account deficit, which swelled to a whopping $503 billion in 2002, bears witness to it. Even relative to the vast U.S. economy, that's big: more than 5 percent of GDP. The economy's continued growth relies on foreigners lending Americans nearly $2 billion extra every working day. And this, at the trough of the economic cycle, when spending on all things foreign is subdued. How huge might the deficit grow if the economy really took off again? Americans are living on borrowed time.

For sure, the day of reckoning can be delayed. The world's biggest economy can defy the odds far longer than, say, South Korea. The Bush administration's Keynesian splurging (sorry, defense spending) has given demand a big boost. Alan Greenspan's many interest rate cuts have made borrowing dirt cheap. Shrugging off the stock market slump, consumers continue to spend more than their disposable incomes, adding to their already huge debts. Fizzy house prices give consumers new grounds for exuberance; they are betting the house and more. But it cannot last forever. Americans are likely to pay a hefty price for their reckless profligacy: Recession or prolonged economic stagnation is likely, causing many more Americans to lose their jobs.

The point is not that Europe is better than the United States, still less that the United States should ape European ways. Each has its strengths and weaknesses. Besides, tastes differ: The American dream differs from European concepts of the good life. But it is simply not true that the United States is miles ahead of Europe, that the old world is a basket case, or that it must remodel itself along U.S. lines in order to survive. More generally, economies with higher taxes and stricter regulations are not destined to fail, however much talk there is of them being unsustainable in a global economy.

Only ten years ago, after all, Americans were convinced their country was in inexorable economic decline. In his 1993 best-seller, Head to Head, Lester Thurow predicted that Europe, not the United States, would dominate the world economy in the twenty-first century. Bill Clinton swept to the presidency on a simple slogan: "It's the economy, stupid." On the heels of the '90s boom and the continued U.S. economic triumphalism, which has persisted through the slowdown, such pessimism now seems quaint. But, although the gloom and doom was exaggerated, the blind optimism that has replaced it is equally misplaced. The United States was not doing as badly then, and it is not doing as well now.

Ten years on, Europe faces its own crisis of confidence. Many Europeans fret that their countries and continent are in decline. They may resent lectures from arrogant Americans, but many fear that they will indeed be compelled to trade in the European social model they cherish for more Americanized ways. Although there is no denying that Europe faces important challenges of economic reform, the pessimism is overdone. Europe's economy has matched America's in recent years. There is every reason to believe it will do even better in years to come.

German success story that scuppers the Europhobes' case

Britain was once the "sick man" of Europe. Now, allegedly, Germany is. Its economy lies stagnant. Its dole queues stretch to more than four million people. Deflation looms. Britain beware, cry foes of the euro, tying our destiny to the fallen German giant would drag us down too.

Or so it seems in the fantasy world that anti-Europeans inhabit. Such delusions are doubtless a comfort to those who still dream dewy-eyed of the Empire, think the Second World War was only yesterday and never venture beyond these shores to confront their prejudices.

Many of them