Economic Denial

100,000 peaceful anti-austerity protesters in front of the parliament of Greece on 29 June 2011. (Photo credit: Wikipedia)

Without question, things are getting a whole lot worse in the Eurozone and in Greece and Spain in particular. 

I’ve done a good deal of Germany and ECB bashing, all of it I believe well deserved.  The German solution to everything has been crushing austerity for everyone except the banks while forgetting that their own prosperity is derived from a fixed game where everyone else has to buy their stuff while simultaneously being unable to devalue because it’s impossible to devalue a foreign currency.  I think it is now pretty much settled that the ECB, by concentrating almost exclusively on inflation, has ignored fundamental economic equality and growth factors needed in Europe.  It is also pretty much settled everywhere outside of Berlin that austerity does not produce growth and without growth you get massive unemployment, poverty and social upheaval all of which might lead to the end of the European Experiment.

Angela Merkel is on the way down unless her party changes course. There are hints of that after the recent drubbing of her party in regional elections.  Even Germans are unhappy.  I would assume that someone has a contingency plan for Greek default, unwinding of the Euro in Greece (and perhaps elsewhere) and the cracking of the current economic structure. After all, even the US has a contingency plan for war with the UK.  But don’t count on it because it is very difficult to convince a buyer that he has bought a fake painting despite evidence to the contrary.

The meetings in Greece over the weekend in the desperate attempt to form a government and avoid another round of expensive elections have not gone as planned.  Curiously, what may result in a new election is the support for the moderates, as opposed to the radical left party, because Greeks actually seem to want to stay in the Eurozone.  This is strikingly similar to the former Greek government announcing that a referendum on the agreed upon austerity program would be held to approve or reject it which, at the time, came as a shock to both Sarkozy and Merkel.  That idea was shot down very quickly and publicly leading to the instant collapse of the Greek government.  Now, we are back to the same position, except Germany can hardly object to elections as opposed to an unscheduled referendum.

The austerity plans so far have resulted in extraordinary economic suffering for people who had little to do with the banking crises but who now are expected to pay for it.  The no-growth austerity policy is virtually impossible to implement and if a policy remains that unachievable (and it was from day one) then it is just a Panglossian academic exercise that is better suited for someone’s doctorate thesis rather than the real world.  So, as in war and sports – everyone has a plan until they’ve been hit. The Eurozone has been hit. The getting-up is up to them. 

There was a place called Europe...

The Eurozone problems are getting uglier by the day.  While German politicians have consistently missed – to use Sarkozy’s phrase – multiple opportunities to shut up, Greece is actively engaged in reminding everyone of German bullying tendencies by bringing up events that took place some 80 years ago.  The latest comment from German finance minister Wolfgang Schäuble might not have been taken quite so badly in Greece if it originated from a country with a less  unfortunate (for the rest of Europe) aggressive history.  Even Italy, which has implemented the same system Mr. Schäuble has suggested, would have been a better source. At least the Greeks could ignore an idea from Rome.
 

The suggestion to postpone elections and install a technocrat government is a distinction without a difference from the previous floating balloon out of Berlin that Greece give up its rights to manage its economy to someone in Brussels.  The fact that Brussels was complicit in allowing Greece to play fast and loose with  its economy so long as times were good doesn't bode well for the idea - but that's another story.  

However, the venomous recent exchanges show that there is no “Europe” in Europe.  Citizens in Germany, France, Italy and the other 24 EU members simply do not think of themselves as European first.  Which is why Greece will eventually default and leave the Eurozone – paving the way for the slow motion economic and political unraveling of the EU unless a new approach is taken very, very soon.  In addition, the concept of installing unelected technocrats to run, at a minimum, the economic policies of a nation has been tried before and didn’t go too well by the time it ended in 1991. 

European Dis-Union

Image by Henrique Oscar Loeffler via Flickr

What is happening with the European Union? For some time, it has been abundantly clear that the core countries of the EU, Germany and France, were intent on controlling the organization both politically and economically. Germany, the economic power in Europe, has clearly tried, more or less successfully, in bending the union to its needs and desires. France is a distant second on the team but still retains a certain amount of leverage over the direction of EU policy. The Greek financial crises revealed the key fissure affecting both concept and practice – self-interest. Germany became the indispensable player. In doing so, Brussels has been sidelined for major issues. Perhaps permanently.

The EU, founded in part to undermine the foundations of nationalism that had inflicted two major wars in the 20th century, is now closing the circle. As a unified economic union it has worked rather well – until now. The protection of NATO, led by the United States, provided the necessary cover to allow economic reforms resulting in unprecedented prosperity and wealth within the union which did not need to fund military expenditures. Once the Soviet Union crashed and burned, the EU could rapidly expand to bring former satellites of the Kremlin inside the club. Again, the existential threat to Europe having vanished overnight, allowed it to concentrate on rapid economic growth, presumably as a bloc, without concerning itself with military expenditures. Expansion was rapid, but then hints of political issues, based on national interests, began to rise to the surface.

The first clear sign of cracks in the unified system were political. The proposed constitution, a mammoth, 400 page tome, was seen by Eastern Europe – particularly Poland, as changing the rules of the game mid-stream. Ireland was the first to vote it down. Although eventually enacted, this document was not a constitution. It was another treaty. In other words, the constitution was a contractual relationship among individual nations. Contracts can be broken, but more importantly was the underlying glossed-over issue of nationalism that the European Union was established to abolish.

Then came Iraq. The key players in the EU, Germany and France, are also key members of NATO. They split, sharply, with the Bush administration over Iraq and the imperial attitude of that administration which flaunted a “with us or against us” childishness in foreign policy that made opposition to the war very, very easy. In no small part, Eastern Europe, and particularly Poland, supported US foreign policy because they needed a balance to the Franco-German alliance within the EU which was threatening to develop a robust relationship with the Russian Federation. European Union cohesion began to unravel at a faster pace.

Nationalism has now risen from the dead. France and Germany, both vying for a leadership position in Europe, appear to have subordinated the goal of the union to purely national interests. Germany under Merkel has increased its dependence on Russian energy supplies to an extent that makes it difficult to criticize, much less resist the more aggressive tendencies of Moscow. This is of particular concern to Poland and the Baltic States – EU members - given their prior experience of deal-making between Russia and Germany.
France has not mirrored the nationalism of Germany, but it also is clearly acting in its own interests when it announced the sale of one or more Mistral class ships to Russia – the first such sale of reasonably advanced military hardware by a NATO member to the Russian Federation. The sale – which has yet to be finalized – did not go down well in the Baltics, or in Georgia.

The Russo-German love affair has alarmed the Eastern European member states enough to send their governments into the bomb shelters of national interest as opposed to those of the EU. If the precedence of national over European goals is good enough for Germany and France, it is just as appropriate for Poland, Estonia, Lithuania, Latvia and Romania.

Greece tripped the nationalism wire completely. Andrea Merkel fomented an anti-Greek atmosphere in Germany for purely political, national reasons that made any sort of unified assistance by the other member states much more difficult. Germany, she clearly implied, would call the shots on any rescue plan. The Greeks were lazy, as compared to good, hardworking Germans, and could not be trusted. Her fulminations resulted in an electorate that not only does not care about Greece, but dislikes it. Now, when forced to lead the bailout, Merkel must backtrack – which resulted in the loss of an important bi-election and damaging her party’s ability to run the country alone. Hoisted on her own petard. And she is not alone in Europe.

Leaving aside the fact that the financial collapse of Greece was entirely self-inflicted, Merkel casually ignored the detail that German representatives occupy some lofty posts in the financial regulatory councils of Brussels who somehow missed the evidence of the approaching melt-down. Germany was going to run the show now for the good of Germany. The attitude was noted in Warsaw, Madrid, Rome and Ankara. The latter, though not a member largely because of the prejudices of the French, Germans and, as always the Austrians, has been given a taste of how it will be treated if the opposition to Turkish membership is ever overcome.

What has happened with the financial crises in the euro-zone is that Germany has essentially changed the deal - one member’s problems are not those of the EU. The union was established as an economic zone, and not a United States of Europe. Gradually, the idea of being a citizen of Europe took over. Without a deep crises, this political concept worked well despite the fact that it was never intended to politically integrate each member nation. With the financial crises in general and the Greek collapse and bailout in particular, the unity of the EU has been shattered despite the rescue plan. The entire episode firmly establishes the lack of a unified foreign policy within the EU. This inability to formulate a consensus approach in foreign affairs is not new. It has merely been below the event horizon for most of the last 50 years. Not any more. The interests of Germany, France, Poland and the southern tier of states are not congruent and in many cases are in direct opposition to each other.

From a foreign policy standpoint, the charade of a unified European approach as a balance to the US, however admirable, has vaporized. The election in the UK resulted in a coalition government, however long it lasts, that is led by a strong Euroskeptic crowd which the LibDems will not be able to overcome. Brussels will find it hard to maintain the appearance of unity, much less a unified foreign policy approach, in a firmly nationalistic Europe.