The World Needs an Economic Locomotive and a Police Force to Avoid Global Chaos and Only Europe Can Provide Them

By Carlo Pelanda

Published in “Il Foglio”, Italy, Sept. 16, 2008

(Modified and translated by Marie Plishka)

Global situation. The United States market, after a rebound in the first quarter, is contracting. Chinese growth is at a stand still. Japan and the eurozone are heading for a recession. By 2006 there was already much speculation of a global contraction in 2008, stagnation in 2009 and a recovery in 2010/2011. Such predictions are based on the analysis of economic cycles. That is, on the fact that after so many years of growth the economy takes a downturn and then springs back. The last cycle was seven years of expansion (1993-1999) and two of contraction (2000-2001). The one before was more or less the same. So, will 2010 be a year of expansion, or will high gas prices and the financial and housing crisis disrupt the economic cycle?

Obviously it could happen if both problems are amplified. However, the global contraction reduced both the demand for petroleum and, more importantly, the pump of capital that had contributed to the swelling of prices to around twenty percent in the ascending phase. In 2009 oil should be selling at a more reasonable $80 to $100 a barrel. America could still experience the failure of certain institutions, but the effect will be containable. Once fears are calmed, Wall Street will stabilize itself. The housing sector is approaching the peak of its fall. This makes it easy to buy houses, which will bring their prices back up. Therefore, high oil prices and the American crises will not prolong or worsen the economic stagnation. There are, however, others at the systemic level that could weaken the economic rebound and change the nature of the next cycle. America is becoming less optimistic. China is vulnerable to a decrease in its exports. Energy prices will go back up with the return of the new expansive cycle. The emergence of new authoritarian powers and the weakening of the system of global governance centered on America could create global chaos. Here are the real risks: America’s economic locomotive with less steam, China’s that explodes or is at least punctured, obstacles on the tracks. Solutions? Europe should become a global economic locomotive and more aggressive on the world stage to assist America in being the economic driver and geopolitical stabilizer. Is it a laughable idea for Europe Union to transform itself from a passenger to a driver and from a lamb into a lion in a few years? If it does not, there will be something to cry about.