By Franz Schurmann

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Prediction #57 for Tuesday, April 25, 2000

In The Global Economy The Euro-Atlantic Counts Ever Less And The Asia-Pacific Ever More

Recently the Wall Street Journal summarized its vision of the global economy in twelve words: "the developing world sells, the US buys and Japan pays for it." How come it doesn't mention Europe?

According to this view, the developing countries make and export the myriad of products consumers find in retail outlets. The most important developing economies are China and Southeast Asia. The biggest consumer is the US.

Japan pays for all this because, as the WSJ puts it, it is "blessed with a population of compulsive savers and cursed with few investment opportunities at home." As a result Japanese don't invest in their sluggish domestic economy. Instead they invest abroad, especially in the US. That creates more jobs here, thereby enabling Americans to buy more exports, especially from China and Southeast Asia.

Why don't the Japanese pour some of their excess money into the European Union (EU)? Western, Southern and Central Europe have around 350 million people. Those countries too are overflowing with cash. Last year most EU countries showed 3-4 percent growth rates.

But unlike the US the EU also is cursed with persistent unemployment. And lately a dark cloud over Europe has been growing bigger and bigger: the relentless decline of the value of the euro, the EU's common currency.

The Japanese are appalled by the indifference of European financial officials to the euro's decline. They say Europe has all the economic basics for a sturdy euro. Why then won't it take off?

European officials are exasperated with Japan for not doing more to revive its sluggish economy. If it revived Japanese would import more from Europe thereby stimulating the continent's economies. But the decline of the euro indicates something deeper is awry in Europe.

Most ordinary Europeans neither like nor trust the euro. Yet if Europe's leaders were to work together to make the EU a success the euro's value would swiftly rise and the people would be ready to accept it as a common currency on January 1, 2002.

Unfortunately, despite the EU, Europe remains a continent of separate countries. And some of them, notably Germany and Italy, are still afflicted by deep-rooted regionalism. If officials and bureaucrats have learned to work together at the top lower down it's different.

When the euro was put on world markets on January 1, 1999 Europe's economic leader Germany was looking inward. In September 1998 Kohl and his Christian Democratic Party were voted out of office. Kohl was the man most responsible for creating the EU. But now he is facing a possible prison sentence because of political corruption.

The German public is now riveted again on an old sore: German unity. A new bestseller written by a West German woman recounts the hate crime environment that surrounded her family while living for six years in East Germany's Frankfurt-on-the-Oder. That eastern Frankfurt has a much touted "European University," but ideologically it is controlled by right-wing radicals who hate the EU.

When in 1994 the US faced its crisis of a falling dollar Bill Clinton acted fast to bring in a strong Secretary of the Treasury. Robert Rubin swiftly turned around the dollar's decline. Now in 2000 the result is a robust economy whose real unemployment rate, some observers say, is closer to 0 than to the official 4 percent figure.

There are three great currencies in the world. Using the tree as a metaphor the American dollar is its trunk. Then come two sturdy branches, the Japanese yen and the German mark. Then, higher up, come all the other currencies. The yen, Japanese officials believe, is too sturdy for it's own good. But the mark has, along with the euro, been going down vis-à-vis the dollar and the yen.

Of all the great civilizations in the world Europe alone has been plagued by endemic disunity. It is fragmented by religion and culture. Its periods of political unity have been short. The empires of Charlemagne (800-814), Charles V (1519-1556), Napoleon (1804-1814), Hitler (1940-1945). The Congress of Europe held it together from 1815 to 1848. Fifteen European countries came together for a few years before Hitler's rise to power. France, Germany and Italy started the process leading to the present EU in the early 1950's.

Currencies are more than repositories of value for use in market places. If people have trust in a currency that is a key force binding people together. The German mark has become the common currency in the Balkans yet Germany and the EU have done nothing to pull that conflicted region together. It was Clinton who stopped the Bosnian war in November 1995 at the Dayton Ohio Air Force Base.

Much of the strength of the dollar and the yen comes from the two countries' high-tech prowess. Yet while Germany is an industrial giant it is a hi-tech midget. Now it is offering permanent residence to some 20,000 talented Indian scientists in a desperate move to get some high-tech action going.

In some ways Germany and Japan are in a similar bind. Their populations are declining and much of the energy that brought about their extraordinary post-war recoveries has dissipated. As they age their people want to enjoy life rather than move out towards some new frontiers.

But there is a big difference. Germany is surrounded by other countries that also have lost economic energy. And all are smaller or less potent than Germany. On the other hand Japan's neighbors are mostly more vigorous than it. These include South Korea, Taiwan, Malaysia, Thailand, Hong Kong, Singapore and above all, the rapidly rising Chinese giant.

America remains the leader of the global economy. But unlike the 1950's and 1960's it now looks no longer in a Euro-Atlantic but in an Asia-Pacific direction. This, in the end, may be the ultimate reason why the euro is fading.