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Europe’s core-periphery conundrum

By Wei Seng

Time to redraw the divide?

I am still catching up on all my subscribed The Economist magazines that have accumulated in my absence in India. This article that I wish to feature today hence comes from a month back, from 27 March. Charlemagne, The Economist's European correspondent, argues that in Europe there actually isnt a core-periphery divide that affects the economic geography of the continent, but more of a north-south divide.

To the uninitiated (this was taught in A-level Geography), the core-periphery theory suggests that with economic development a region (the core) will expand into its neighbours (the periphery) to continue its economic growth. The periphery can benefit if the economic spoils of the core spill over into the periphery, but the periphery may alternatively lose out if the core sucks up resources from it but remains undeveloped economically.

While Charlemagne is not using the core-periphery theory per se, he is arguing that it is impossible to define Europe based on a core-periphery model as it would be geographically inaccurate when one studies representations of economic development on the map of Europe. If there is a core, it would probably be represented by Germany (probably the economic capital Frankfurt) and Belgium (Brussels, the administrative capital of the European Union). But variations in economic development away from the core defy the impression of a simple "concentration gradient" whereby economies further away from Frankfurt and Brussels are poorer. The Scandinavian countries are a good example, for they are located far away from the "heart" of Europe but yet these are the wealthiest and most developed countries in the continent. It seems like it is too simplistic to represent Europe based on a single core surrounded by the periphery.

Charlemagne then suggests that instead what we see in Europe is a North-South divide. Again for those unaware (this is also taught in A-level Geography), the north is a representation of the rich whereas the south is a representation of the poor, a generalisation based on global trends. Such a representation of the world can be said to be quite contentious because it is geographically inaccurate. Australia, being a rich country, is located in the Southern hemisphere but qualifies as the North in this divide. For Europe, however, this divide seems to fit in nicely with both geographical and economic trends. If you look at GDP representation, you actually see an East-West divide, as we currently understand of Europe that Western Europe is wealthier than Eastern Europe. However, since the financial crisis of 2008 and the eventual storm it has unleashed on governments in Europe, it seems more accurate to portray an economically-stronger Northern Europe and an economically-weaker Southern Europe.

Where then, to draw the divide? While Eastern Europe would qualify as part of the south given the difficult conditions they face today in managing and reviving their economy, even some Western European countries with higher GDP per capita than that of in Eastern Europe are in varying depths of trouble. One could probably draw the line south of France, Germany and Switzerland, which would then include Spain, Portugal & Italy, the economically more fragile countries in Western Europe. Greece and the Baltic states would very obviously be in the South given the harrowing economic conditions faced.

The difference in portraying Europe using the core-periphery theory and the North-South divide is this: given the severity of the financial crisis, while countries in the core / North are holding up well, they are no longer willing to support countries in the periphery / South that are tethering on the edge of bankruptcy, given the systemic risk of default and collapse some of these countries face and the threats of the problem spreading. That many of these countries in the periphery / South are in the EU makes matters worse for countries in the core / North because it seems reasonable to expect help from wealthier neighbours in an economic alliance when your country is in trouble. The North-South divide illustrates more the contrast as well as the unwillingness of countries in the North to help the South, which the core-periphery model does not exactly illustrate.

Sounds like a storm in a teacup or making a mountain out of a molehill, the usage of different economic geography theories to describe Europe, for us observers in Asia. Then again, the subtle differences in definition of these theories help explain the mindset of countries like Germany today, when it refuses to bail Greece out from its debt crisis, though for us it seems the logical thing to do.