“Europe’s economic pain will bring pain to entire global economy” – US economist

19 May, 2010, 04:52

There might be speculators who will gain from EU’s problems, but they are only a handful of people and a very small percentage of the total GDP involved, says Robert W. Fogel, American economic historian and scientist.

“The more rapidly Europe’s economy grows, the better it is for the global economy, the better it is for China, for the US, for India. European economic growth is an important factor in global economic growth,” he says.

“PIIGS – Portugal, Ireland, Italy, Greece and Spain – have very high debt burdens and the euro has been falling quite rapidly,” Robert W. Fogel says. “The fundamental source of the problem has been the very generous pension funds and other entitlements which are not sustainable given the level and rate of growth in the principle European nations – I refer to them as the EU-15, the countries that were in the European Union in 2000. So the inability to meet the obligations or the great burden of these obligations threatens to strangle the economy of other European Union nations.”

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The renowned American economist and winner (with Douglass C. North) of the 1993 Nobel Memorial Prize in Economic Sciences, Fogel also says that Europe has known a crisis was coming.

“There have been discussions by the economists of the OECD, the Organization for Economic Development and Cultural Change, for years,” he says.

“Another problem that the European nations have – which the US does not have – is the ageing of its population. The fertility rate has, since the 1970s, been below reproduction and as a result the proportion of elderly people had been rising relative to the proportion of people in the labor force. That is one of the root sources of the problem,” Robert W. Fogel says.