The economic up-turn that is beginning in Europe will, I suspect, prove more long lasting and go further than most commentators suspect. There is a general assumption that Europe is slow and inefficient and that although it may now have a cyclical up-turn this will be relatively weak compared with that of the USA or countries in Asia. However, in Europe today one cannot assume that the past is a good guide to the future. Europe is changing. Painfully, and often reluctantly, reforms are happening and as an economic unit Europe is becoming more efficient and effective.
When the euro was introduced many commentators predicted that it would fail. Months after its introduction it was worth much less than at original floatation and this was widely taken as confirmation that the euro was a failure. The reverse was the truth. The value fell because the euro was so successful. One euro for all Europe was much more efficient than a score of different currencies. Since it was more efficient you did not need so many to do the same job. There were, therefore, surplus euros and so the value fell. Any first year student of classical economics could understand this but the "experts" did not. They did not because they were opinionated in a negative way. I suspect that we are currently seeing a repeat performance.
The up-turn in Europe has been slow coming and so far appears rather feeble. This is just like the early days of the euro. Why might it be this way? Is it a parallel phenomenon? Quite likely the answer is affirmative. For instance, unemployment has stayed higher longer in Europe than elsewhere. Why? Well there are two possible answers. One is that Europe has declined industrially. The other is that Europe has become more efficient in its use of labour.
If the second alternative is the one contributing the greatest effect then we can expect that the rebound will start slowly but be more powerful in the long run. A comparison with Britain under Margaret Thatcher may be instructive. At that time Britain lost about a third of its industry, but it became a more efficient economy and since then the country has not suffered from the boom-and-bust cycles that were crippling it before to anything like the same extent. With some regional exceptions such as Greece and Portugal, European industry has not been as severely devastated as was that of Britain and, in any case, the backbone of the economies of those regions never was productive industry. Nonetheless, something rather similar has been happening.
European leaders from across the political spectrum have been aware that there has to be an increase in efficiency and in a vast number of small ways and in some major ones, such as the reform of the banking sector, this has been happening. It could profitably go further, but there are limits to what can be achieved in a confederation of democracies in which most of the public have little idea of what is really happening. Nonetheless, palpable progress has been made.
It seems to me likely, therefore, that just as the euro eventually rose well above its floatation level and is now worth quite a bit more than the US dollar, the economy of Europe taken as a whole, which is already the largest economy in the world if taken that way, will now outstrip predictions. Even if it does not reach the "economic miracle" level, what we are probably going to see is a steadily strengthening economic growth that is not merely cyclical.
This will have political as well as economic consequences. It creates power and where there is power there will be struggle to take control of that power and then the power will be used. Europe has taken a bit of a back seat in international affairs so far, but this is already changing and we can expect it to change more. Whether this will be a good thing for the world as a whole will depend upon the wisdom of those who take the helm and, unfortunately, humankind has so far failed to find any system that guarantees such wisdom. The "American century" - actually more like about eighty years - may be drawing to a close. Whether a new European one is dawning remains to be seen, but it is not an impossible scenario.