Europe smiles again

All of a sudden, after years of navel-gazing, soul-searching and brow-beating, Europe has a spring in its step.

Europeans don’t do upbeat easily. You won’t see EU finance ministers giving each other high-fives in Brussels. But make no mistake about it – after almost a decade of sluggish growth, high unemployment and weak leadership, there is a sense that Europe is back with a vengeance.

In a recent opinion poll, over half of Europeans interviewed said they thought the situation of their national economy was ‘good.’ In Germany, three-quarters of respondents expressed optimism about the economy – up almost a third in a year.

A quick glance at Europe’s vital statistics shows why EU leaders at last have something to smile about.

In 2006, economic growth in Europe jumped to 3%, a paltry figure compared to China or India, but the fastest rate in six years and roughly equal to the United States. Employment grew by 1.5% - twice the average rate of the 1990s – translating into 3.5 million new jobs. Other economic essentials are also healthy. Inflation hovers around 2% in most countries that have the single currency, thanks to strength of the euro and the European Central Bank’s succession of robust interest rate hikes. For the first time in a decade labor productivity kept pace with the United States in 2006 and is set to rise even faster this year. And eurozone countries have managed to bring down their budget deficits from 2.8% of gross domestic product in 2004 to 1.6% of GDP in 2006.

The stabilising effect of the euro has certainly played a part in Europe’s economic renaissance – although non-eurozone members still register higher growth rates than those signed up to the single currency. The raft of structural reforms agreed under the so-called Lisbon Strategy has also helped dynamize the European economy.

With European business confidence surging and stocks at an all time high, the mood on the old continent is buoyant but not triumphalist. “The time of "eurosclerosis" may be past us, but this is not a time for complacency,” wrote Greek Finance Minister George Alogoskoufis in a recent Wall Street Journal op-ed. “Europe still has work to do in order to complete its transformation from a laggard into a leader.”

Research and development spending is significantly lower than Japan or the United States. Unemployment, although falling, is still much higher than almost any other industrialized power. And plummeting birth-rates coupled with longer life expectancies are creating a population ‘time bomb’ that threatens to blow a hole in most European countries’ budgets.

Recent changes at Europe’s top table should help force through the structural changes needed to sustain the recent economic upswing. The arrival of German Chancellor Angela Merkel, with her strong values and stubborn negotiating style, has helped breathe life into an EU that seemed rudderless until recently. She was instrumental in striking a deal on the bloc’s 2007-13 budget last year. And during Germany’s six-month presidency of the Union, which ended on July 1, she helped clinch a deal on a new EU rulebook and on slashing greenhouse gas emissions. From being the ‘sick-man of Europe’ Germany – the world’s largest exporter – is now back to its position as Europe’s economic motor – although much of the credit is due to the reforms pushed through by former Chancellor Gerhard Schroder.

The election of Nicolas Sarkozy as French president in May is also a breath of fresh air after 12 years of drift under Jacques Chirac. The hyperactive Sarkozy has struck up good relations with Merkel and proved himself a tireless negotiator at the June meeting of European leaders that agreed the new EU blueprint. Symbolically, he has also signalled a less chauvinistic French policy towards Europe by inviting EU leaders and troops from all 27 member states to parade down the Champs Elysees during the July 14 Bastille Day celebrations.

The coronation of Gordon Brown as British prime minister is, on paper, less good news for Europe. The Scotsman is not an instinctive Europhile like his predecessor Tony Blair and he is more cautious towards the United States than the former occupant of 10 Downing Street. However, Brown is unlikely to antagonize European leaders and voters in the same way Blair did with his knee-jerk pro-Americanism and division of the world into goodies and baddies.

The EU, which now has almost 500 million citizens and is the biggest economic power on the planet, has benefited from the recent surge in optimism in Europe. A tangible majority of 57% of citizens think that their country’s membership of the European Union is a good thing – up four percentage points since last year to reach its highest point since 1994. Almost seven out of ten Europeans now see a bright future for the European Union, with a majority of citizens seeing the EU playing a strong role on the world stage, with its own army and a directly elected president.

One of the reasons why the EU is more popular is that it has started addressing concerns, like crime, immigration, unemployment and climate change that are close to the heart of most European citizens. Almost nine in ten Europeans expect the EU to deal with global warming as a matter of urgency. The 27-state bloc has not disappointed. In March, EU leaders signed up to the world’s most ambitious plan to combat climate change, agreeing to unilaterally cut greenhouse gas emissions by 20% by 2020 and by 30% if other industrialized countries come on board.

The Union has also taken populist measures – like forcing mobile phone operators to slash roaming charges and airline companies to display the full costs of tickets in adverts – that are sure-fire vote winners.

Europeans – like Americans - still fret about higher prices, the rise of India and China, the outsourcing of jobs to cheaper countries and over-dependency on unstable regions for gas and oil imports. But the sense of existential angst associated with terminal decline is fading as robust growth fuels more jobs, more spending and, ultimately, more optimism.