Europe’s lingering hostility towards the market economy which sways from suspicion to outright resentment is rearing its head again, and has Tony Barber fuming.
One reason why the eurozone is sliding into ever deeper trouble is because its political and bureaucratic elites do not like, do not understand and have no wish to understand financial markets.
In the last few weeks, European leadership has alternately attacked everything from hedge funds, sovereign wealth funds, to now rating agencies. On the surface, it might resemble same kind of populist outbursts American politicians served up on a plate when confronted with public outrage during the bail-out and ensuring bonus debate. But in a European context, the public rage has been largely directed towards rising unemployment and prospects of potential cutbacks. The leadership on the other hand, have been largely playing victims to the boogeyman that is financial market participants.
In the meantime, British and American analysts are racing to decipher the long-term implications of what took place over the last few weeks.
First stab: Germany is clearly emerging from its WWII guilt-ridden, Euro-centric, and multi-lateral stance, to a national psyche that is more focused on self-preservation. It will have its fiscal sustainability, within or without the Eurozone.
Characteristically, one of the key terms of fiscal conservatism in Germany is borrowed from environmental politics: Nachhaltigkeit or sustainability. Unsustainable debts are associated rhetorically with a diffuse and contradictory bundle of future-angst – worries ranging from climate change to Germany’s declining population. Quirky it may be, but it would be wrong to deny that this eco-enhanced fiscal conservatism does have some grip on reality.
Secondly, part of the fiscal imbalance within the Eurozone itself, in which northern and southern Europe more or less mirror the financial co-dependence between China and the US, needs to be addressed. Opinions differ as to just exactly what Germany’s options are, aside from its long-term pursuit of and export-led model, given its demographics and fiscal conservatism.
A low-inflation, export-driven model of growth was an appropriate policy in the face of Germany’s national disaster in 1945. It was contained within the Bretton Woods system thanks to America’s accommodating current account balance. In 2010, such a policy is fundamentally at odds with Germany’s role as the anchor of the eurozone. The challenge for the German political class is to complete the modernisation that it has achieved in so many other areas of policy. It must overcome the last legacy of the Adenauer era in its knee-jerk commitment to fiscal conservatism.
Post WWII, Europe’s political power projection on the world stage has been weak relative to its economic contribution. Should it fall from economic grace too, then what is left? American is undergoing a painful economic adjustments with political consequences, and its status as the lone hegemonic power is both unsustainable, and undesirable to most.
It is one thing to ask, as Lawrence Summers did, how long the world’s biggest borrower can remain the world’s strongest power. It is another to ask how America can provide global common goods when it can’t solve its own elemental national domestic problems. In such times the international scene wants for a strong European Union that shares democratic values with the United States.
One of the highly idealistic, and now seemingly dead wrong assumptions from the start of the EU project was the gradual reduction, and eventual banishment of the idea of power politics within the continent. But to its surprise, sovereignty still matters greatly to many, and no national leaders would put the interest of their countries above that of a vague state apparatus operating from Brussels.
The Euro-elites were hardly ever serious about building a political union that would require far-reaching concessions concerning national sovereignty; they saw no need for such sacrifices in a world in which power politics no longer played a significant role. Now they find themselves in a world in which power politics still matters, and they are weaker and less prepared to engage in such politics than ever.
The lack of an higher ideal behind just exactly what the EU experiment stands for (other than the purported economic integration), has relegated the continent to striving for relative economic comfort, and little else.
It seems to have nothing to do with economics and everything to do with beliefs—specifically, belief in the values for which the society stands. Many Europeans cannot figure out for sure what those values are, for the Euro-elites seem to have been struck dumb in this sphere as in no other. The sense of involvement in a great mission, of preaching the virtues of a better world, has vanished. The closest thing to a shared noble cause is now an anodyne, lowest-common-denominator environmentalism. It is hard to generate much enthusiasm for the commandment to separate green glass from brown. The European model has thus approached that of Latin America, whose countries have a common ancestral culture, generally live in peace with each other, and fail to cause the rest of the world much trouble.
Now that relative economic comfort provided by the welfare state starts to slowly crumble, brought on by an overly ambitious economic integration project, political largess, and unfavourable demographics, what is next?