The Bad Old Days in Europe?
As the euro crisis seems to worsen (or simply goes on without resolution), more voices are willing to speak a fear that, even a couple months ago, was limited to a small fringe: The collapse of the euro.
At this point, there simply is no realistic option except to have the European Central Bank act more like the Federal Reserve and issue massive numbers of bonds to support member countries (that is, print money, equivalent to our own “quantitative easing”). This path will weaken the stronger EU nations, which is why Germany has remained steadfastly opposed. It doesn’t want the inflation, it doesn’t want to see its own perceived creditworthiness weakened in the form of higher interest rates (something that’s already starting to happen), and it doesn’t want to be on the hook to rescue weaker countries. And who can blame them? Indeed, the German constitution may even ties the hands of legislators and prevent them from participating in some forms of European bond issuance.
Not that the alternative looks great. If the euro collapsed to all but a handful of the strongest states, the resulting strength of the currency would undermine exports of those countries and lead right back to many of the problems that led to the creation of the common currency in the first place. Thus, the choice is stark: Member states have to decide whether to collapse or simply shoot themselves in the foot.
But maybe the collapse of the euro, and all the resulting ripples through our own economy, isn’t what we should be worried about. Historian and economist Niall Ferguson points out that it would be a lot easier--and a lot more likely--for some nations to simply leave the European Union altogether. While 17 countries use the Euro, 27 count themselves part of the EU. Will those 10 non-Euro EU members--perhaps most notably the U.K.--really just sit by while the Eurozone weakens itself and puts them on the hook for further support? Ferguson believes that some nations, led first by the U.K., could instead simply withdraw from the EU to avoid becoming “second class citizens” in a damaged union.
For drug makers, the idea of a dissolving EU may actually be even worse than a collapsing euro. Since 1995, companies have gotten used to the idea of filing for drug approvals with the European Medicines Authority. A return of individual agencies and country-by-country approvals would mean not only a massive increase in regulatory costs, but also a return of national self interest, where some drugs are not approved in order to favor domestic rivals--that is, for protectionist rather than scientific reasons.
In this new world order, biotechs will find it particularly hard to compete, as the apparatus to support regulatory filings in multiple European countries may be beyond their means. And that will put them more in thrall to Big Pharma partners. Is this what we have to look forward to?
Luckily, this remains pure speculation for now...but long odds are getting shorter by the hour. Food for thought.
-Karl ThielRead the BioPharm Executive online newsletter November 30, 2011.
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