RECENT DEVELOPMENT IN EUROPEAN COUNTRIES BY:SARANG MAUNDEKAR ANKITA JANGDE The four different sectors of a national economy and their role in growth Each economy has four sectors: 1. private households 2. capitalist enterprises 3. government with its huge budget 4. 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 future. • 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 regions. • 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. thank u