Going to the United States for 24 busy and introspective days as part of the Marshall Memorial Fellowship taught me three things about the current economic situation: a fact, a lesson, and a good example.
A fact: the Euro Zone countries made a big mistake. They allowed the current account balance to remain negative even during periods of economic upswing. In downturn times like we have nowadays, the Euro Zone will face big problems if budgets don’t operate as counter-cyclical instruments – in fact, if budgets aren’t working at all. Allen Schick, a distinguished Professor of Public Policy at the University of Maryland, for example, predicted the havoc in Cyprus a few days before it really happened. Budgets must be balanced.
A lesson: Thomas B. Fomby, Professor of Economics from the Southern Methodist University of Texas in Dallas, agreed with Schick and pointed out that nowadays Europeans face a new kind of structural unemployment. Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labor market and the skills and locations of the workers seeking employment. This concept explains why in Europe we face such high rates of unemployment: the lack of education, mainly at more vocational levels. Why doesn’t Europe, like US, offer magnet schools with specialized courses or curricula to fill this gap? Europe must make structural changes to address the larger economic problems.
A good example: the Retirement System in Alabama, with its headquarters in Montgomery, seemed comparatively risk adverse and allows justice between the generations. It offers a pay-as-you-go system, prohibits State debt (and consequently there are no defaults in sight) and imbalances. It seems to me that Europe must follow this example and come together with a more powerful central government speaking with one voice.
In sum, urgent changes are needed in Europe—something I’m more aware of at the conclusion of my MMF Fellowship.