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. Last Updated: 07/27/2016

Pacific Slumps Won't Bypass Cozy EU Club

The decision this week by Europe's two giant oil corporations, Shell and British Petroleum, to invest some $3 billion in Russian energy through Gazprom and Sidanco looks curiously timed.

The Pacific Rim economies are being threatened with meltdown. Stocks on Wall Street and in the City of London are falling back. The West's media run alarmist stories about a global economic crash, but Europe's oil men have decided to buy. Why?

Obviously, the price is right, and the expectations of future oil profits are high. But another factor is at work, a growing mood of European self-congratulation that their common market provides a special immunity from the storms that toss the global economy.

But look at the trading statistics, and it seems that the 15 countries of the European Union are especially vulnerable to sudden slumps in world trade. With just under a quarter of global economic output, they account for almost a third of world trade. But pretty soon, that EU share of 31 percent of world trade will slump to around 10 percent.

That is because from Jan. 1, 1999, 11 of the EU countries will start merging their currencies into a new single money, the euro. So what is now counted as world trade, when France sends exports to Germany and Italy, will then become in statistical terms an internal trade.

An important test of the political implications of this comes this week, when the 15 political leaders of Europe gather in Luxembourg for their special summit on jobs. Unemployment remains the shame of European prosperity. In a work force of almost 150 million, 18 million are out of work. Three million of them are young people who have never held a job. Five million are long-term unemployed, jobless for a year or more.

The European Commission, the civil service of the EU, based in Brussels, has come up with guidelines that look like platitudes. More training is needed, as are lower payroll taxes that act as disincentives to hiring, taxes that mean German machinists who earn $25 per hour cost employers $40.

But what most of the EU countries are refusing to consider is scrapping what is called the European social model, the system of generous welfare states and high wages with high taxes that first got them into this mess. At least, that is the criticism made by the Americans and British who argue that their more ruthless capitalist economies offer a more dynamic, more successful Anglo-Saxon model.

The Anglo-Saxons have a strong case. The developed economies have seen 13 million new jobs created in the last five years. Eleven million of them were in the United States. More than a million were in Britain, jolted out of its old European-style welfare system by former Prime Minister Margaret Thatcher. The rest of Europe created 500,000 jobs.

So Britain, with unemployment just 6 percent, looks out of place at the jobs summit. In France and Germany, unemployment is at 12 percent and rising. Like the United States, Britain is committed to the wild ride of the global economy. It trades less with the rest of the Europe than its partners, and London remains a global finance center like New York. So far, it is staying out of the euro currency.

If the Europeans think their cozy club can remain immune from Pacific slumps, they should think again. The fortress has a massive hole in its walls.