european countries

The four different sectors of a national
economy and their role in growth
Each economy has four sectors:
private households
capitalist enterprises
government with its huge budget
the rest of the world
According to Richard Koo, Europe is in such a
situation, that is, in which only massive state
intervention can secure the growth rates needed.
But as discussed above, Europe has put itself in a
straitjacket that will prevent any such move.
Private households
• In the GIIPS states the private household sector is dramatically overindebted, and the need to deleverage is urgent there.
• The new economic governance programmes of the EU and the
Troika favour further privatisation of public services, like the health
and pension systems.
• This means that even in the central states of the EU private
households have to save money.
• They become so-called “capitalists against their will”. They have to
feed the financial “industry” with their small savings if they want at
least to hope for a decent living in the future.
• As they are forced to set money aside, they cannot stimulate the
necessary demand.
Capitalist enterprises
• There is not much hope that they will invest any
more than they have done in the past, knowing
as they do that private demand will drastically fall
in the coming years.
• Competitive advantage was not sought in
technological advancement but by undercutting
the prices of their competitors.
• Profit which was earned was not reinvested in
production, but was instead invested in the
financial sector, as that is where higher returns
were expected.
Government and the public sector
• As Richard Koo points out, the state has to
intervene in a situation in which neither
capitalists nor consumers are spending money.
• The problem for Europe is that it has chosen to
save itself to death rather than invest in a better
• The new rules for economic governance in the
Eurozone make it impossible for the public sector
to fulfil its necessary role as investor of last
resort, so to say.
The rest of the world – conclusion
• Europe is in a dramatic predicament in which no
domestic sector is able to generate the necessary
growth stimulus which could lead Europe back to
stable growth rates.
• There is only one way out for the hegemonic bloc
in Europe: Europe as a whole has to imitate
Germany’s “successful” development path of
recent years.
• Europe as a whole has to become a surplusexporting economy.
What will the future EU look like?
• Many EU citizens dreamed of an EU where the living standards are
increasingly equalized, so that the material bases for a common identity
can evolve. This dream has faded; the periphery had its chance, but we
will now witness its demise.
• There will be some isolated examples of high-growth regions, but these
regions will not serve as growth poles which radiate into their surrounding
• On the other hand, we will see a north-western European group of states
emerging, which will together establish a “look east” policy towards China.
• These export-oriented states will not offer good opportunities to all their
citizens, but the unemployed in these countries will still be better off than
their counterparts in the unfortunate GIIPS states.
• The elites of the export-oriented European states will ensure that this
difference continues to exist, as through this a transnational coalition of
the excluded can be prevented.
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