There’s a story hidden behind Disneyland Paris’ name that only a few people are aware of: at the beginning, the company’s top management decided to call it Euro Disney Resort to attract costumers living all around Europe. They thought associating the project to the country hosting it would lead to failure to attract people from UK, Germany, Spain or Italy considering the widespread historical tensions on the old continent. Another argument to tip the balance in favour of the name above was the fact that Americans thought any European reference was cool, and that would eventually translate into American clients. Unfortunately, these were conclusions drawn by Americans, for an American company. They didn’t realise for Europeans the word Europe is nothing but associated with money, politics, business and regulations.
The Lesson Learned
Besides the implications for Disney and its stakeholders, the story should make Europeans consider what’s in store for their future. The perception that the European locomotive has been on the wrong tracks is palpable and has a few reasons: the lack of a unified strategy to manage migrants’ flows, no prompt solutions for the economic crisis (even with the help of QE, the unemployment rate and inflation are far from target), the rise of nationalism, populism and anti-Europe movements, and above all, the tricky “no bailout” clause of Maastricht Treaty. From this perspective, the Brexit referendum shouldn’t be surprising at all. It’s just a clear sign of the diseases affecting the Union currently. Actions are needed.
At this stage of the story the situation could go in two different directions: either maintaining the status-quo and thus end up eventually with an inevitable as well as catastrophic fragmentation of the Union, or finding the strength to put ideologies aside, creating the necessary space for a new era of well-being and development through a deeper political integration within the Union.
The financial intermediation started several centuries ago by ante-litteram Italians in cities such as Venice, Florence and Genoa has led both developed and undeveloped economies towards levels of debt never seen in history before. In the aftermath of WWII, the geopolitical setup was built around one big surplus economy (US) providing goods and wealth to European countries desperately in need of credit in order to rebuild what war destroyed so terribly. The idea of eliminating the risk of devaluations, as Germany experienced, was not that bad for American investors: imposing a fixed exchange rate between the dollar and other European currencies represented at that time a great opportunity for profit without a great deal of risk. Political leaders implemented the Gold Standard in which the dollar’s exchange rate was fixed to a certain amount of gold. As a consequence, all the European currencies were prevented from rising in value.
The Americans couldn’t be better off: as they were making big money selling every kind of product throughout a devastated Europe, their banks, after collecting all the wealth coming from the real economy, bought as many bonds as they could in order to profit from higher interest rates without taking the risk of reducing their initial capital if inflation occurred. From that moment many things have changed. For example, America is not a surplus economy anymore, and emerging markets such as China and petroleum exporters have taken their place as the engine of the world’s growth. But, nonetheless, those years represented the starting point of the era of debt.
Debt, indeed, could be explained as a double-edged sword: on one side it enables the spread of well-being from the rich to the poor; on the other it works like a stigma for the debtor, amplifying the bad shocks and reducing the good ones. Investors, who are actually pricing the market, know that what’s owned today has to be returned, with interest, tomorrow.
If Europe wants to emerge stronger than ever and become a geopolitical leader, it has to first effectively manage its debt and decide to take prompted actions with those countries affected negatively: Portugal, Ireland, Italy, Greece and Spain (PIIGS). If nothing changes, the only way for repaying existing debt is by growing GDP. The problem there is that we’re dealing with countries hit badly by a massive crisis, facing an ageing population and affected by a cost of labour that has skyrocketed in recent decades. Moreover, considering that they’re not emerging economies anymore, it seems impossible to reach the levels of growth around 3.5%-4% needed to repay public debt. So what should be done?
There is only one way to ensure European governments will be able to repay their debt without incurring more harmful delays or restructurings: lowering the degree of interests requested by investors when they’re buying bonds. In fact, many states have a positive primary surplus, so their revenues outweigh the costs, but added with interests costs, their balances end up in deficit. Here’s the pivotal point so desperately needed in Europe: a superlative political integration ready to put all fiscal policies together and create a state-owned fund to manage the European debt as a whole. Of course, that’s just utopia, but the risk connected to PIIGS can be lowered. This way, these countries will be able to dimish their interest expenditure and unleash potential that has been chained so the bad status of their economies. Further austerity measures would only lead towards the collapsing of a system created through sweat and tears – see the recent example of Greece.
Political integration is a must-take call for the Union, not only because it makes the economies better, but also because it will determine the strength of European voices and needs on a geopolitical stage threatened by Russia, North Korea and ISIS. It’s time to leave nationalism to the side and build a proud sense of being European.