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Wednesday July 18, 2007

Europe’s East inoculates West against American Economic Sickness

The fall of the Berlin Wall may have not only freed many Eastern European countries from the control of command economies but also freed many Western European countries from being dominated by US consumer markets. As the new markets are emerging, the longer established west - led by Germany, France and Italy – is benefiting from the eastern desire to industrialize rapidly.

This year’s first quarter has already seen Eastern Europe overtake the US in the quantity of exports from the Western European powers. Explanations for this phenomenon are not hard to come by. Not only has the strength of the dollar diminished thereby increasing the cost of trade into the United States, the Eastern currencies have appreciated in contrast to the Euro making the transactions beneficial. The developing markets are also booming at the moment and affluence is bringing in an increased desire for growth. And with growth comes business investment, including capital investments, and consumer spending. In addition, the economies are also growing because of increased outsourcing and offshoring by large multinational corporations.

These methods, as Thomas Friedman states in “The World Is Flat”, have been leveling the playing field and allowing smaller economies to play in the big leagues, so to speak, thereby skipping a lot of the previously necessary steps to modernization. Outsourcing and offshoring are beneficial for both parties involved and allow diligent use of resources in order to maximize profits.

Growth in the industry is being questioned nonetheless. Many say there might be a cap unless logistics and methods of transportation of exports are updated. In either case, what hopefuls are looking for is an eventual twofold trade between the eurozones that would undoubtedly finally usher in modernizations that were once blocked by an iron curtain hindering such progress.

By Francesco Lugli