From “How Germany Reconquered Europe,” published in the February 2014 issue of Harper’s Magazine. This excerpt from a discussion between five experts on European and American policy explores whether the euro will survive in Europe, given the region’s economic woes. The full article is free to read at Harpers.org through July 20. Subscribe to Harper’s Magazine for access to our entire 165-year archive.
Jeff Madrick authored Harper’s Anti-Economist column; James K. Galbraith is the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, University of Texas, Austin; Ulrike Guérot is the Associate for Germany at the Open Society Initiative for Europe; John N. Gray is the Emeritus Professor of European Thought at the London School of Economics; Christian Lemke is the Max Weber Chair in German and European Studies at New York University; and Emmanuel Todd is a historian, social anthropologist, and political scientist at the National Institute of Demographic Studies, Paris.
jeff madrick: We gather for this discussion at an interesting time. Angela Merkel has just been comfortably reelected chancellor of Germany, which seems to strengthen the hand of austerity advocates there. Throughout the euro zone, trade is becoming less imbalanced. Productivity is rising in some countries, and a decline in labor costs is helping exports. All of this has led to a calming of financial markets. But the other side of this coin is extreme deprivation across the south of Europe, where unemployment remains extremely high and GDP is well below pre-crisis levels. Meanwhile, here in the United States, Janet Yellen is set to replace Ben Bernanke as chair of the Federal Reserve, and many observers wonder how long she can resist inflation hawks, who are demanding the “tapering” of the Fed’s quantitative-easing policy. Events in Europe could well influence her decision, and her decision will in turn surely affect economic conditions in Europe.
So this is the backdrop as we gather two Germans, a Frenchman, an Englishman, and an American to discuss the future of the euro zone. We hope to cover many topics today, but will begin with the most basic question: Will the euro — that is, the euro as a shared currency and the euro zone as a multinational political and economic entity — survive? Two questions naturally follow from this one: Should the euro survive, and if it doesn’t, what might take its place? Finally, we’ll talk a little bit about the consequences of the euro’s future for the United States. But first, Ulrike, if I might start with you: Will the euro survive?
ulrike guérot: The euro will certainly survive. In Germany, we are committed to the European Union not only for economic reasons — the economic benefits to German industry are admittedly great — but also for historical, geographic, and political reasons. Germany doesn’t want to go it alone. I think we all agree that the European Union has had flaws from its very beginning. A political union has lagged behind the economic one. To me, this is the real crisis. So the better question is: Under what conditions of dysfunction will the euro survive? There have been several attempts since the Maastricht Treaty of 1992 to reform the European Union’s institutional framework, but we need to recommit ourselves to fiscal and political integration, to making the euro more legitimate and also more democratic.
madrick: John, your thoughts on whether the euro will survive?
john n. gray: Well, we have to say over what period. If there has ever been a time when the euro zone could have disintegrated abruptly, that time is past. So if we’re talking about the next few years or perhaps the next decade, I agree with Ulrike that the euro will survive in a dysfunctional way. Over the longer term, it seems to me that the preconditions of functionality cannot be met. There isn’t going to be true political union in Europe, or anything resembling it. If the euro had been confined to a small number of similar countries, if it hadn’t expanded the way it did, you could have had a monetary union that evolved into a political union. Instead, the euro zone grew to include countries with radically different levels of economic development, radically different political systems, radically different histories. If you believe — and I agree with Ulrike on this point — that a real political union is a precondition of the euro’s long-term survival, then I don’t think it can survive.
The basic lesson of the past ten, twenty years — even of the past hundred years — is that the upper limit, not only of democracy but of political legitimacy, is the nation-state. I’m not a nationalist, I don’t particularly like the nation-state, but I think that’s simply a fact. Apart from a few relics like Canada, the United Kingdom, Belgium, and Spain, which are genuinely multinational polities (but also remnants of empire and monarchy), there are no genuinely multinational democracies in the world, and I don’t think there will be.
In the case of my own country, I don’t think the British political class or the majority of British voters have it in them to make any fundamental, radical decision. On current evidence, I don’t think they will commit to leaving the European Union. But I’m equally sure, or more sure, that any deeper commitment is politically impossible. The depth of public opposition is profound. Whatever deeper integration happens in Europe, we won’t take part.
emmanuel todd: The euro is a great mystery to me. From my perspective it’s clear that it cannot work — that is not the mystery. These are very different nations, not just in terms of economic practice but in terms of social anthropology. If you take Germany, for example, you have a very connected culture. France is much more individualistic. Many differences derive from this, starting with birthrate. To a demographer, it’s obvious that a nation producing 1.4 children per woman — Germany — and a nation producing two children per woman — France — are entirely different worlds. If the euro survives, we’ll have ever more unemployed young people in France, because through the euro we are imposing an economic system that doesn’t match our culture or demographics.
I predicted all this in 1992, so to me the economics of the thing are no longer interesting. Outside Germany, it’s pretty obvious that the euro is a complete failure. So the mystery I’m talking about is: Why does it go on? That is not an economic question; it’s an ideological question. I think France is much more responsible than Germany for this mess. The German dominance of Europe is possible only because of French acceptance. You must realize what the euro is from the point of view of French politicians, whether right wing or left wing. They had the idea, they imposed it on Germany, which accepted it and turned it into a very efficient, German economic instrument. For France, getting out of the euro would mean admitting that our entire political class was hapless. It would be the beginning of a social revolution.
madrick: Maybe the confrontation ultimately is with France. But let’s leave it at that for now as I move on to James K. Galbraith.
james k. galbraith: Jeff, if I could, let me restate the question this way: Will the euro zone continue with its full complement of present members under the current policy regime indefinitely? And the answer I would offer is somewhere between “very unlikely” and “absolutely not.” Right now we are witnessing the destruction of some of the smaller countries of the European south. It’s very plain in Greece — a country that has never had strong public social institutions. Those it does have — the health system, the education system, the system of infrastructure, and the maintenance of basic public services — are being demolished. You can’t make a country attractive to foreign investment in a manner that will produce economic recovery if these social underpinnings are destroyed. Portugal, Ireland, Spain, and Italy are not as far down the road as Greece, but they are on the same general path.
So what will happen? One of two things. There may be a coherent political rebellion against the current direction of European policy. At the moment, I think the most promising source of such a rebellion is Syriza, the radical-left coalition in Greece, but there are other candidates. That rebellion would place the leadership of Europe in the position of having to decide whether they wished to continue the euro zone in its present form. If they did, policy would have to change. The second possibility is that the leadership of the center of Europe, specifically Chancellor Merkel’s government, may decide to change its practical approach to these questions, in defiance of what it has been saying up to now. Those to me are the only two possibilities. I quite agree with Emmanuel Todd that the French position here is a nullity. France has not been exercising any effective, coherent position. On the other hand—
todd: I’m ashamed, as a Frenchman.
galbraith: And on the other hand, one has to respect the fact that Germany has a chancellor who has proved herself a very successful political figure and therefore has created for herself the possibility of exercising real leadership in this matter. In order for her to do so, there first has to be a recognition that this crossroads is coming. At the moment, Europe is attempting to stabilize the bond yields and the finances of Portugal and Ireland while leaving Greece to fester as an untreated wound. This raises the question of whether it would be possible for a single small country to be effectively expelled from the euro zone as a result of political impasse. There’s a belief that it is possible, and I think that belief is profoundly dangerous. We have experience with what happens to large conglomerate political systems when small pieces of them leave. The Soviet Union did not survive the departure of the Baltic states. Yugoslavia did not survive the departure of Slovenia.
All right, the euro zone is obviously different from those two — but what would happen? You can cut off a toe, which is Cyprus — that already happened. But if you cut off your foot — which is Greece, roughly 2 percent of the total European economy — the markets will immediately focus on the next limb, the next most vulnerable part, which might be Portugal. When Portugal goes, people will start looking at Spain, and when Spain goes then they’re looking at Italy. The notion that you can partially dismantle what was created as a permanent and irrevocable currency union without eventually seeing the whole thing collapse strikes me as mistaken. It’s an all-or-nothing proposition.
madrick: Thank you. Let’s get some of Christiane’s views.
christiane lemke: Yes, the poor euro. I do believe that it will survive. But right now it’s like a swimmer halfway out from the shore. It hasn’t safely reached the other bank of the river, and it can’t really go back. It was a very risky project from the start.
As Emmanuel was saying earlier, the myth about the euro is that it exists to benefit Germany, that Germany created the euro to be more competitive, to increase exports, to dominate other countries. Historical records show that this is not the case. Germany gave up a very strong deutsche mark because the French — François Mitterrand — pushed the German government to prove its Europeanness. That project has been very successful: Germany defines itself as a European country, and there is no will to renationalization among the German people. It’s not just in Germany that this political project has been quite successful. If you look at countries from the former communist world — Poland is a great economic success, the Balkans are politically stable, Croatia has joined the European Union, and Serbia is an official candidate. So there is something going on in a broader context, in a political context, here that makes an integrated Europe very valuable to citizens.
As for the economic project, I do agree that there are fractures. There was an idea that if you created one currency, economies would converge. They have not converged, and they will not do so in the future without other policies in place. Austerity will not do the trick. We all see austerity policies pushing countries in southern Europe even further into crisis, but that is partly because the wrong programs are being cut. Military expenditures in Greece are 2.6 percent of GDP, higher than the European average, higher than in Britain or in China. Start there. Don’t start with infrastructure programs or social programs for the poor and the middle class.
At this point, the euro stands for a deeply integrated Europe. The costs of dismantling the euro zone, or of allowing single countries to exit, would be immensely high. To reintroduce the French franc or the deutsche mark, the costs would be tremendous, and the global economy won’t wait. These economies are closely intertwined, not just in terms of trade but in terms of production. Over the past ten, fifteen years, there have been many Franco-German projects—
galbraith: This is no longer true.
lemke: — to take this apart—
todd: You’re talking about the past.
lemke: If you look at trade-balance figures, France remains the major export country for Germany, and vice versa. The state of both economies is such that we do need the euro to be competitive in the world market.
guérot: Since you mention the world market, and since we’re talking for an American magazine, let me just suggest another reason the euro will survive, which is that there are too many actors — especially in U.S. markets — who want it to survive. Nobody on Wall Street wants the euro to break apart. Nor do the Chinese. So that’s a good reason to assume it will survive.
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