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Europe’s Hamilton Moment


The euro and its discontents

From “How Germany Reconquered Europe,” published in the February 2014 issue of Harper’s Magazine. Read the full article here. Subscribe to Harper’s Magazine for access to our entire 166-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.

guérot: Europe is facing its Hamiltonian moment: either we make it or we don’t. The United States was forged through a debt crisis after a war, and after a hundred years you made it and you have these automatic stabilizers in your system. So give us a hundred years’ time and then we’ll speak again.

galbraith: I have sympathy for your project of a grand, unified federal democracy, but you haven’t got a hundred years to build it. You haven’t got three years to build it. It’s a question of steps that should be taken now, that need to be taken in the next six months to prevent a very serious decline toward social disorder in certain parts of Europe. In Greece now you have a Nazi party that murdered an artist in the streets of Athens just in the past few days. This is a situation that is becoming exceptionally urgent.

lemke: I want briefly to address these problems Greece has. Looking at the problem-solving capacities of the European Union, it can do only so much. A lot depends on the countries themselves to implement reforms. Greece’s big problem is that it is totally polarized between left and right. The rise of the Golden Dawn Party is of great concern, but I think the polarization of the left is also a problem. Where is the center? Where is the civil society of the center that can hold this country together? That’s something the Greeks will have to solve by themselves. And it sometimes reminds me of Weimar Germany, when you had the right and the left being totally opposed to democracy, and what came out of it we know. If it doesn’t happen now it will be precisely because of the European context. In the 1920s Weimar Republic we did not have this kind of civilizing transnational discourse that we have now, making this a European issue and not just a Greek issue when you have a Nazi party harassing immigrants and spreading violence and fear. But I think that countries do much better if they address their own problems to a certain extent, and if they develop civil societies in the center.

todd: This is important. Countries should address their own problems.

lemke: Has France?

todd: No, because of Europe! Because we all know in France that as soon as a politician starts saying that some problem will be solved at the European level, that means no one is going to do anything. Sometimes it can be pleasant. When we had this discussion about an absurd war against Syria, suddenly Hollande — I call him “Vice Chancellor Hollande” rather than “President,” because he has no power left at all — suddenly Vice Chancellor Hollande said, We’ll address the problem at the European level. Well, I felt safe again. That means we’re going to do nothing! So Europe can be of some use.

guérot: I think we should move away from Greece, because it’s not the critical issue for the future of the euro zone. The critical thing for me is still Franco-German synergy. The key to the euro’s future is in Paris’s hands. If the Franco-German engine breaks down, then I think the euro is dead. And because most people in France and most people in Germany know this, it won’t happen. That’s my guess. Scenarios about Greece and Portugal and Ireland are, in a way — I’m sorry to say this — secondary. The real question is: Will France and Germany stick together?

gray: Well, here I do agree. I think the relationship between France and Germany is crucial, and so the ultimate mechanism for ending the euro might be a breakdown of that relationship. A different path to breakup could involve more countries, because we’re living in a world of extremely active bond markets and financial markets generally, and if one peels off for one reason or another then the next one will be attacked. In a sense, European projects come up against, it seems to me, the dominant forces in the past hundred years. One is popular sovereignty, which has so far only been expressed at the national level. The second is, over the past twenty or thirty years, globalization of markets. While all this is going on, while Europe is introspectively contemplating its project of federal unification, very rapid, enormous changes are taking place in other countries, like China, like Brazil, like India, and so on.

I’ve spoken to Chinese officials about this. It’s a sort of mixture of wanting European currency to survive for basically conservative reasons — they’re terrified of the upheaval that would occur if it ever broke down — mixed with a complete inability to understand why the crisis hasn’t been solved. “Why don’t you stop it?” they ask, speaking to Europeans. But there’s no “you.” There’s the ECB, there’s the German political system, the French political system, and they’re all internally fractured to a high degree, so you have a series of different beliefs with shifting and competing goals confronting this enormous conundrum and so far unable to resolve it.

madrick: And yet we’re still here.

gray: Yes, but you’re here as a nation-state. I mean, I think the most successful nineteenth-century nation-state in the world is the United States.

guérot: Multinational by the way, right?

gray: It isn’t multinational. It isn’t multinational to any degree at all. Would any American describe the United States as multinational? Of course not.

guérot: Multi-ethnic, yes.

gray: It’s not the same thing! As long as there is confusion about that, we can’t understand the European situation. In the period from the 1880s up to the First World War and afterward, America pursued a policy of extremely intensive assimilation, through the school system and other ways, to force immigrants into a cohesive national culture. It’s a classical European nation-state and the most successful nation-state in the world. And that essentially seems to me why Europe’s project is going nowhere. It’s yesterday’s project, in a way. It’s a project that basically responds to the catastrophic history of Europe in the twentieth century, not to the situation now. Half of twenty-first-century Europe is suffering to address the twentieth-century German question.

galbraith: Very quickly on the historical point: the United States was an intensely divided country for the first ninety years of its existence. The division was the Mason–Dixon Line. North of it was free labor, south of it was slave labor. These were fundamentally incompatible systems that ended in civil war. From the Civil War until the beginning of a coherent civil policy that forged an economically unified nation-state was precisely sixty-eight years — that is to say, from 1865 to 1933. Sixty-eight years also happens to be the time that has elapsed since the end of the last great European civil war, so the clock is ticking, it seems to me, not only on Europe’s Hamilton moment but also on its Roosevelt moment.

todd: I’m really sorry, but the idea that there is such a thing as Franco-German friendship is just nonsense. In France we’re very glad we have no big problems with Germany and the wars are over. But the idea of a special cultural or sociological link between Germany and France is nonsense. Among the French bourgeoisie, the elite, there is a sort of reverence for Germany, because Germany is obviously more efficient and because the German people are obviously so much easier to govern than the French people, so there’s this kind of friendship in the upper classes. But the true cultural links for France — if you think in terms of political philosophy, democracy, freedom, individualism — the actual links are with Britain and the United States. It’s just that simple. So we have a political project with those countries through true cultural links. I mean, from a French point of view, getting out of the euro would be a tremendously good thing. This would imply that our governing classes would start governing again, that we’d have full national responsibility. People tend to be resigned to the idea of the nation as a thing of the past. Yes, nationalism was responsible for violent conflicts across Europe and elsewhere. But the nation itself is not bad. The nation is the place for democracy, for making decisions. What would happen if the euro zone broke up? In France we would have some economic problems, adjustment problems, but being together as Frenchmen, doing things together, being, as we say in French, “in the same shit,” would be great! It would be the beginning of a new age, you see? There’s nothing terrifying about this.

madrick: It could also cause a sharp rise in inflation, a sharp rise in national debt.

todd: Yes, the collapse of the euro would be the gateway to defaulting on debt. But we have to default on debt anyway! There is such overaccumulation of capital in so few hands that defaulting on debt is our destiny.

galbraith: On the question of what happens if the euro zone should break up: There are two major possibilities. One is that it breaks up à la Yugoslavia, it breaks into pieces, in which case the integrated production and trade networks will collapse. We already have a model of this in Cyprus. You will have capital controls. You will have the dissolution of the existing economic units, cooperative companies, whatever they may be. You will have unemployment, disruption, massive migration. How much was the reduction of total output in Yugoslavia, or for that matter in the Soviet Union, when those entities broke up? On the order of 40 percent. It is something not to be taken lightly, it seems to me. What will happen is that if you’re selling BMWs in Italy the question will be: Do you pay back in lire or do you pay back in euros? And there’s no court mechanism for deciding these things! It’ll all be an enormous legal tangle that will tie up commercial relations for a very long time.

The second possibility, which is marginally easier but not very attractive, would be for the Germans to exit while the euro stays for the south. Then the debts would still be denominated in euros, which would depreciate, and that would make it much easier to ticket, and you could perhaps have a Mediterranean euro zone, headquartered in Paris.

todd: No, no, no. No, no, no.

galbraith: I’m just saying, that’s the second possibility. I think the chances of that happening are vanishingly small.

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