The European Crack-Up
Greeks arent Germans.
A Belgian journalist who interviewed me recently about the European debt crisis asked me whether I believed in the European Project. I replied that I would answer her question—if she would tell me what the European Project actually was. By revealing my doubts, I proved to her that I suffered from the strange kind of mental debility known as Euroskepticism, a condition supposedly compounded of low intelligence and aggressive xenophobia. The low intelligence manifests itself in the patients view of European institutions as a gravy train for a transnational nomenklatura, rather than as the beginning of a new, generous, and free-spirited type of postnational identity. The xenophobia manifests itself as a secret desire for conflict and war, the European Union and its predecessors supposedly having been responsible for the avoidance of war on the Continent over the last 65 years.
Michel Euler/AP Photo
The journalist then asked whether I thought that nationalism was dangerous. The question implied that the choice before Europe was between the European Union and fascism: that all that stood between us and the ascension to power of new Mussolinis, Francos, and Hitlers were the free lunches of senior Eurocrats. I replied that dangerous forms of nationalism existed, of course, but that in the present circumstances, supranationalism represented by far the greater danger. Not only was such supranationalism undemocratic, for it reflected no widespread demand or sentiment among the population; it also risked provoking the very kind of nationalism against which it was to stand as the bulwark. Further, the breakup of supranational polities in Europe tends to be messy, as history demonstrates.
I was not entirely fair, however, in implying that no one could say what the European Project was. José Manuel Barroso, a fiery Portuguese Maoist student leader who became the preternaturally dull president of the European Commission—perhaps not as great a change as one might suppose, many a revolutionary being a frustrated bureaucrat—once let the cat out of the bag. Asked the same question that the journalist asked me, Barroso responded, Sometimes I like to compare the European Union as a creation to the organization of empires. He hastened to add that the E.U. was not a traditional empire. But it is surely the case that an empire in Europe, large, rich, and powerful, would assuage the feelings of a political class frustrated by having inherited a smaller role in world affairs than that of their predecessors, who ruled real empires many times larger than their own countries.
Reflection on the situation in tiny Belgium might introduce an element of doubt into the minds of the most fervent believers in the European Project. Belgium has existed ever since it was cobbled together in 1830; yet in all that time, it has not been able to create a durable national identity. One of its many prime ministers, Yves Leterme, once said that just three things held Belgium together: beer, soccer, and the king. As I write, Belgium has not had a central government for more than 500 days. While I must admit, as an occasional visitor to that country, that the difference between Belgium with and Belgium without a central government is not apparent on casual inspection, this interregnum may take the theory of limited government too far.
The reason that Belgium has lacked a government for so long is that the country is divided into two populations (actually three, but the third is too small to count) with incompatible politics: French-speaking Wallonia and Dutch-speaking Flanders. Belgium is officially bilingual, yet you see not a word of Dutch in Wallonia and not a word of French in Flanders. The division could not be starker if barbed wire separated the two provinces. Only in the capital, Brussels, does one find any concession to bilingualism.
Historical and economic factors deepen the division between the two regions. Wallonia, though it contained a minority of Belgiums population, long dominated its culture and economy. Even the Flemish upper class spoke French at home, while Dutch was the language of the peasantry; until recently, Belgian schools forbade children from speaking Dutch in class. With the decline of Wallonias coal and steel industries and the economic rise of Flanders, however, the pattern of dominance changed. Flanders went from being the poor relation to being the rich one, albeit with something of an inferiority complex. In the process, it started to make large transfer payments to Wallonia, which suffered from comparatively high unemployment. Such payments rarely promote goodwill between groups. Resentment is common among both the donors, who harbor suspicions that the recipients are exploiting them, and the recipients, who indulge in mental contortions to explain their dependency away.
It is no surprise, therefore, that the largest political parties in Flanders are either nationalist or free-market; both philosophies lead to reducing or stopping the transfer payments. It is equally unsurprising that the largest political party in Wallonia is socialist and wants the payments to continue or increase. The Wallonian socialist partys patronage powers in its territory are almost feudal in nature and extent; the last thing that the party of social change wants is actual change. But neither the Flemish parties nor the Wallonian socialists are strong enough to impose a government on the whole country.
Belgiums inability to form a central government would not matter so much if the country did not need to reduce its public spending. Though Belgium is the largest per-capita exporter of goods and services in the world and has healthy private savings, it also has a large and growing public debt—nearly 100 percent of GDP—and an annual budget deficit of more than 5 percent. With growth negligible and government bond yields rising in a currency (the euro) that the Belgians cannot inflate, retrenchment is essential, but the Walloons and the Flemish cannot agree on how to do it. The Walloons want higher taxes to maintain the current arrangements; the Flemish want lower taxes and reduced spending to promote long-term growth. The result is a stalemate. Wallonia and Flanders are like a married couple who no longer can live together but find divorce impossible because of difficulties over the settlement.
It happens that the central offices of the E.U. are located in Brussels. Yet the political difficulties of Belgium do not give the European unionists pause for thought—or, if they do pause, they reach a peculiar conclusion: that what has not worked in two centuries in a small area with only two populations will work in a few years in a much larger area with a multitude of populations. It does not occur to the unionists that different countries really are different: not a little bit, but radically, in culture, language, history, traditions, and economies. The term European is not meaningless, but whatever content the term may have, it is not sufficient for the formation of a viable polity.
The debt crisis has revealed differences in national character of precisely the kind that make any closer union both difficult and dangerous. Indeed, the very attempt to force a union is at the root of the crisis, for if Greece and Ireland, to take two countries at the geographical extremes of the continent, had not been able to borrow in euros under the false supposition that eurozone membership effectively guaranteed their sovereign debts, it is unlikely that they would have wound up in their current straits. After all, lenders might have taken more care if their debts were being paid in drachmas or Irish pounds, which the Greeks and Irish could have inflated to their hearts content.
The Irish and the Greek situations are, however, significantly different, and together they constitute a school for Euroskeptics. Ireland was flourishing until about 2000; its impressive growth rate was founded upon easy access to the largest market in the world, a low rate of corporate taxation, colossal foreign investment, and a young, educated population. In a few years, Ireland went from being a land of immemorial poverty and hardship to being one of the richest countries in the world.
Then, in the 2000s, Ireland was seized with a madness worthy of a chapter in Charles Mackays 1841 book Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. This derangement took the form of a property bubble. Easy credit and low interest rates drove up the price of existing property astronomically; one house in Dublin fetched nearly $100 million. A construction boom employed a quarter of the labor force; more houses went up in Ireland during this period than in Britain, whose population was 15 times greater. Foreign banks lent to the Irish with astonishing insouciance. The Royal Bank of Scotland lent $50 billion—about $12,000 per person in Ireland. British, German, and Belgian banks together lent about $100,000 per head, which would work out to about $30 trillion had they lent in America in the same fashion.
Delighted, the Irish government taxed transactions and watched its coffers fill up. Despite boosting public employment by 59 percent between 1985 and 2002 and paying government workers more generously than almost any country in the world, it enjoyed a budget surplus. For a time, everyone was happy.
In the last analysis, however, the government was paying its workers with borrowed money, even if it had first passed through private hands. When the whole pyramidal edifice crumpled, the government nationalized the private debt by guaranteeing the solvency of the Irish banks, thus taking on obligations far larger than the entire Irish economy. The budget deficit rose to 32 percent, and unemployment shot up from 4 percent to 14 percent in a matter of months. Construction came to a complete stop; the Irish countryside was littered with unfinished, unoccupied, unsellable housing developments, ghost towns before anyone had lived in them, unromantic ruins in the making. Approximately 5 percent of the population resorted to emigration, ever the Irish safety valve.
But the most interesting part of the story is that Ireland experienced almost no social unrest after the economic collapse. People were angry, of course; with reason, they blamed the government and the bankers; but they did not give themselves license to misbehave. The Irish understood, as no other people seems to have understood, that they were complicit in the crisis. They had enjoyed the party while it lasted; they had elected and retained in power the politicians who brought them unrestricted cheap credit; they had crowed over their rapidly accumulating wealth as house prices rose giddily; they had derided warning voices as unpatriotic; they had borrowed money as if it grew on trees; and even taxi drivers and supermarket workers had spoken gleefully of their Spanish holiday homes.
Yet when the crisis hit and the government had to cut public-sector salaries drastically and pursue other austerity measures—friends of mine who live in Ireland have lost a fifth to a quarter of their wages—hardly a word of complaint ensued. Most people seemed to understand that the seven fat—indeed, grossly obese—years simply had to be followed by the seven lean. The relation of the previous excess to the present hardship was obvious to everyone, and the population sought no scapegoats, even if, correctly, it blamed the politicians and bankers more than it blamed itself.
The Irish did take the first opportunity to vote the government out of office; Fianna Fáil, the dominant political party since Irish independence in 1921, found itself humiliated at the polls. But in recognizing the painful fact that the guilt of others does not constitute ones own innocence, the Irish set the world an example. Since the crash, successive Irish governments have had the determination to fight to retain their low corporate tax, called predatory by the other Europeans. (It is symptomatic of Europes sickness that refraining from government seizure of money is now deemed by its political class to be predation.) The Irish economy may thus be poised for a quicker recovery.
Greece was another matter. The government, also relying on euro-based good credit, borrowed simply to bolster its public sector. When this differently constructed pyramid collapsed, the populations chief object became warding off change—ensuring, that is, that it continued to receive more than it earned and consume more than it produced. Yes, the government was corrupt; yes, foreign bankers lent irresponsibly. But did Greeks really not know that tax evasion was standard practice in their country, and by no means only among the elite; that much of the employment in the public sector was bogus make-work; that retirement conditions superior to those in Germany were unearned and unsustainable; and that their political and administrative class was composed of liars and cheats? Blaming the Germans—the Nazi stereotype emerged quickly, once European subsidies were reduced—became a convenient way to avoid self-examination.
Of course, the Germans, or at least those of the German political class, were not blameless. They joined the other leaders of Europe in thinking that they could override economic reality in creating a common currency, just as they thought that they could override social reality in forging a political union. It seemed not to matter to them that the German population, like many European populations, had wanted nothing to do with the euro—and that it might be dangerous to present it with the bill once the inevitable trouble resulted.
For a time, the euro did seem to serve German interests, allowing countries to buy German goods that they might not otherwise have been able to buy. Meanwhile, Germany, with a determination not shown by other European countries, reduced payroll taxes and barely increased wages, having previously established a powerful manufacturing base. Savings rose, and Germany became the China of Europe. Now it has the problem of what to do with its trade surplus, larger than the trade deficits of France, Italy, and Spain combined.
Europeans have painted themselves into a corner. If the debts of European countries are mutualized, there can be only one country that lays down the rules of mutualization, and it wont be France, struggling with a large deficit, large debts, and a large trade imbalance. The historian John Robert Seeley famously wrote that the British Empire had been formed in a fit of absence of mind; so could it be with German hegemony in Europe.
But it is doubtful that Germanys understandable demands for fiscal rectitude would produce joy elsewhere in Europe, where the economic and social consequences would be painful. Even in Ireland, one hears mutterings about how independence has been ceded to the Germans, as all European technocrats now tend to be called. In Germany itself, the solution of trying to inflate the debt away by issuing more euros is not likely to prove popular, since leaders had promised their skeptical population, back when the common currency was under debate, that adopting it would never mean having to pay other countries debts. And for obvious historical reasons, a discontented German population is not reassuring to the rest of Europe.
The alternative to sharing the debts seems to be the breakup of the euro. This might turn recession into prolonged slump, with the countries expelled from the eurozone forced into a default catastrophic for the banking system. I get dizzy just thinking about the bank account in which I hold euros: in the event of a breakup, will it be denominated in drachmas or deutschmarks, and who will decide? Like everyone else, I would prefer deutschmarks, a preference that will drive up the price of the currency to the point that German exports, no matter how high their quality, will be too expensive to buy.
No wonder German chancellor Angela Merkel appears indecisive: like every politician, she wants a painless solution to a problem. She does not want to throw Germanys weight about, demanding every countrys Papieren, bitte. Yet she does not want to be responsible for rampant inflation or for the breakup of the euro, either. Whatever she decides, love of Germany in Europe will not grow.
In short, the incontinent spending of many European governments, which awarded whole populations unearned benefits at the expense of generations to come, has—along with a megalomaniacal currency union—produced a crisis not merely economic but social, political, and even civilizational. The European Union that was supposed to put an end to war on the continent has resuscitated antagonisms that might end in bellicosity, if not in outright war. And the European Project stands revealed as what any sensible person could have seen it always was: something akin to the construction of a massive, post-Tito Yugoslavia.