Lessons from the EU

Professor Sorman first addressed the European reaction to the recent troubles, which has been rather different from one country to the next. Northern Europe maintained economic policies based on principles, not short term decisions. The German model and experience show that in the long run, strong principles will prevail; crisis should not affect economic policy drastically. In the South, short term decisions to create jobs and demand is prevalent, along with stimulus policies.

Europe could serve an experience in that Asia, in the long run, could have a common currency, or at least a stable exchange rate. This kind of convergence would be extremely beneficial. When there is no coherence, imbalance and distortions are created due to differing monetary policies, and economic decisions are not based on rational factors but competitions. A common currency is not required for free trade and benefits, as even though not all the EU members have adopted the Euro, they often behave as if they are. Previously, the currency relationship between Germany and France was difficult, to be managed by governments and central banks. A stable currency protects the people and investors against inflation and provides long term equity and safety for investors and people. The Euro is quite stable despite all the pessimism and news of crisis. 

Professor Sorman then discussed the issue of welfare. There is no debate in Europe that welfare and social equity is the duty of society at large and government. The public sector is the most significant in Europe, and people have the guarantee that the state will protect them when they are ill.

However, welfare is always a question of who will manage, to what extent, and what kind of fine tuning is required. This is a highly complicated game, with different answers from different countries. There must be a compromise between solidarity and growth, and the choice must be made whether to replace traditional solidarity with government solidarity. The current problems in the welfare and pension system are present because the system was created when European economy was dynamic and growing. Now, growth has slowed down, which is leading to problems.

The lecture was then followed by a lively question and answer session, where the student brought up questions regarding the lecture.