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February 2014 Issue [Forum]

How Germany Reconquered Europe

Since the financial collapse of 2008, Americans of all political persuasions have been frustrated both by the tepid recovery and by the political dysfunction that seems to get in the way every time the economy looks ready to turn itself around. But there’s another region where recovery has been even weaker and political dysfunction arguably even worse. Europe has faced its first major economic crisis since its post–Cold War integration and its subsequent adoption of a common currency. The continent — long admired by American liberals as the home of a more just social order — has embraced fiscal austerity to a far greater degree than has the United States, with drastic budget cuts for poorer member nations such as Greece and Portugal.

For observers in the United States, Europe’s struggles raise many questions. Can a united Europe survive — and should it? Does European integration represent the transcendence of the continent’s bloody twentieth century, or its continuation by other means? Has a project begun in a spirit of liberty, equality, and fraternity turned authoritarian, hierarchical, and antagonistic? If the union is as bad as its critics claim, why does it remain so popular in many member nations? And how will the future of Europe affect that of the United States?

This past fall, Harper’s Magazine brought together experts from several European nations and the United States for a private forum, followed by a public discussion at the National Press Club in Washington, D.C. Both events were moderated by Jeff Madrick, the author of Harper’s Anti-Economist column.


Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, University of Texas, Austin

Associate for Germany at the Open Society Initiative for Europe

Emeritus Professor of European Thought at the London School of Economics

Max Weber Chair in German and European Studies at New York University

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.

madrick: Emmanuel?

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.

Illustrations by Lincoln Agnew.

Illustrations by Lincoln Agnew

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.



guérot: Coming back to some of the criticisms of the euro, I’d like to give you a sentence, if I may, from Theodor Adorno: “What is must be changeable if it is not to be all.” I say this to answer Mr. Gray’s point that we have never had a multinational democracy. I agree that this is the biggest question facing Europe: How do we organize the multinational democracy of Euroland? I’m not in denial of the difficulties, nor am I naïve about the challenges ahead, but I think it will happen. If the euro were going to go away, it would have done so in the past five years, when the system was under such great strain. Instead it has proved pretty resilient. Even in Greece today, polls show that roughly 70 percent of Greek people want to stick to the euro. The same applies for Spain. Why is this so? We are not just talking economics here; there is a cultural, traditional, historical attachment. I traveled to Greece, Portugal, Spain, and Italy before coming here, and if you question these people, give them the option to leave the euro, they will say that being part of Europe is a sort of national raison d’état.

todd: The way our German friends talk about Europe is very strange to a Frenchman. From an ideological point of view, outside Germany, Europe is a dead concept. In France nobody believes in Europe. We may be too paralyzed to get out of the euro, but as for believing in Europe? Again, I’m not accusing Germany. I entirely agree that the French elite are responsible for the mess.

Perhaps we need a metaphor. I’m going to use not Adorno but Kafka. Europe used to be a wonderful project, a beautiful dream — many free, democratic, liberal, equal nations getting over the past and building a general European democracy. That was the project. But it’s like in The Metamorphosis: you go to sleep a man and wake up a giant bug. We started as a collection of free and equal countries and we woke up as a monstrous hierarchy. You’ve got the bottom — you’ve got Greece — and then Spain, Italy; you’ve got France as a sort of brilliant second to Germany, and you’ve got Germany, which is the center of the system. The idea was to make Germany a European country. What we have instead is Europe as a German power zone. It’s all very peaceful. It’s like a peaceful parody of the past, but it’s the same past. People will tell you we’ve learned from history, we’re not going to make the same mistakes. Well, this is bullshit. We are making the same mistakes.

Source photograph © Kyle Monk/Getty Images

Source photograph © Kyle Monk/Getty Images

galbraith: Greece is pro-euro. It does not wish to exit. But Ulrike spoke of integrated policy in Europe. From the perspective of Athens, that means a policy dictated by the troika.

madrick: For our readers, that’s the European Commission, the European Central Bank, and the International Monetary Fund.

galbraith: Right. So the troika dictates the policy, and what is that policy? When I was in Athens in June, they were talking about mortgaging gas discoveries off Crete to pay debts. They were talking about privatization of small power operations on Greek islands, which can only result in increased prices and basically driving residents out. There’s a whole range of policies being discussed that essentially consist of running Europe like a debt-collection agency. Europe will not survive on that basis. Christiane spoke about the military budget in Greece. Was the troika talking about making the Greek military cease purchasing German tanks or French submarines? Somehow that wasn’t on the agenda.

lemke: It should be.

galbraith: Of course it should be! But that’s something to raise not with the Greek government but with the German government or the French government.

gray: I think the big question is the one Emmanuel raised earlier, which is the mystery of how this project continues and how it’s still regarded by some people as successful, when there are so many clear reasons it can’t succeed. The answer is complicated by features of recent history. The last believers in the project whom I find outside Germany are in the postcommunist countries, Poland and the Baltic states particularly. The reason for that is obvious: for them the European Union and the euro represent normalcy. If you traveled there in the communist period, as I did extensively, you would ask, “Well, what do you want?” And what they would say is, “We want to be normal European countries again.” Now the reality is they are entering European normalcy, but it’s the normalcy of European crisis. It’s the normalcy of Europe as it actually was for most of the past hundred years. And of course a feature of that is the return, in an entrenched democratic context, of many of the old European demons. Particularly obvious in Hungary: anti-Roma groups, anti-Semitism — tolerated, condoned, and actively promoted by the government.

In practically every European country, including some like my own that are outside the euro and will remain outside the euro, the central wound of democratic politics is immigration and anti-immigrant movements. The shadow created by this vast labor market with free integration is that in every country, including countries with a strong liberal tradition, such as the Netherlands, there are equally strong populist and postmodern movements, not necessarily of the classical far right. So that’s just a fact.

Why haven’t the errors and the mistakes of history been recognized? We’re in America, so I will refer not to Adorno or Kafka but to Barbara Tuchman, one of the great historical writers of the twentieth century, and her book The March of Folly. I think this idea of folly has to be brought back into the analysis. Now, follies are not errors. Errors are mistakes; they are policies or positions people adopt that can be abandoned when they’re proved to be self-defeating or to have unfortunate or even disastrous unintended consequences. A folly is a policy so thoroughly associated with the groups that support it that they can’t abandon the policy without destroying themselves, and that’s the case with much of France’s—

todd: That’s very clear in the French case.

lemke: But we’ve never had Europe without crisis. Looking back, there was never a time when there was this great project of spirited intellectuals, of utopian models. There were always some visionaries — Jean Monnet being one, Joschka Fischer being another — some pro-Europeans. But there have always also been times of severe crisis — just remember the “eurosclerosis” debate in the Eighties. Everybody said, “Europe is outmoded, Japan is going to take over!” Think about the Sixties: butter mountains, milk lakes, you know, the agricultural policy didn’t work. After German unification, Germany was in a deep economic crisis. Postunification Germany was really troubled. It was an economically depressed period. These crises are part of the European project, and what we need is a transnational debate.

gray: Supporters of the European project have always held the view that a transnational political union of a democratic kind, which poses problems that are extremely difficult, will be resolved through crises. I heard a private talk by Joschka Fischer back in the early Nineties, that’s to say twenty years ago, in which he said there’ll be huge crises, it’s absolutely inevitable, but each crisis will bring us closer to the goal. It’s a kind of classical position. Gorbachev actually held similar views at one time about the Soviet Union. I think myself that the project of creating democracy at a supranational level in Europe, even perhaps with a slightly smaller number of countries, remains in the realm of impossibility. But you see, if it is a folly, then it’s not going to be abandoned because of rational argument. It’s not going to be abandoned because we’ve learned from mistakes. It’ll be abandoned only in a crisis larger than the ones we’ve seen so far. And that may come many years hence.

galbraith: This idea of an integrated federal democracy in Europe seems to me to be an impossible hurdle at this stage. It’s also, in my view, entirely unnecessary. What is necessary is a change in policies within the framework of the current European treaties, which is entirely achievable if the leadership of Europe chooses to move in that direction.

guérot: This is the line that really divides us here in this discussion. I don’t want to believe that a politically integrated Europe is impossible before we have really tried. To me, political integration is really the project of today, tomorrow, and beyond. Obviously this is not a project for the next three months or the next three years. We need to construct a European transnational democracy. There are many hurdles, yes, but I want us to try it before getting fatalistic about it. We have a concrete Franco-German proposal on the table for a euro-zone presidency, which could become the zone’s treasury. There’s a proposal for a European unemployment-insurance fund, which would shift the question of fiscal transfer from a nation-to-nation context to a context of European citizenship. There are half a million creative proposals there, and they can be explored. They are difficult. But why must it be impossible after sixty years of success so far?

gray: Just one tiny question. The question isn’t only whether it’s possible but whether it’s desirable.

guérot: But what else then?

gray: There are many possibilities. It’s like debates I used to have with communists about the Soviet Union. They said, “Well, if you don’t have this, what do you have? Just chaos!” It’s utter nonsense.

guérot: What then? You go back to nation-states. These ideas of the nation-state and sovereignty, these are old-fashioned notions, hanging around from the seventeenth century. They don’t apply to a world that is fully connected. If we are going to flourish in a global economy, we need to get over these ideas.



galbraith: If you look at the European economy as a whole, over the five years since the beginning of the crisis, and you look at the U.S. economy, the performance of the two large continental economies is in fact very similar. Both suffered a severe shock and a subsequent fall. In the aggregate, both have been moving along at the bottom with some recovery in some parts. There are three differences, however, all of which work to the advantage of the United States. The first is that in the United States, the automatic fiscal stabilizers work everywhere. Social Security, unemployment insurance — they come from federal tax revenues. They are distributed over the whole country. In Europe, the automatic stabilizers work very well in Germany, they work quite well in France, they worked in northern Europe. They don’t work at all in Spain, Portugal, and the periphery, in Greece and Italy. So you’ve had a bifurcation in regional economic performance, which has not occurred in the United States.

The second big difference is that the debts at issue in the States are largely private debts. They’re largely mortgage debts, whereas in Europe they’re largely public debts. Private debts are a tragedy for individual households, but they’re not socially destabilizing. They go away with time; people pay them down or they default. That’s the end of it. The public debts have to be either paid or restructured, and if they can’t be paid they won’t be paid, and this becomes a political question that has to be resolved at the highest level.

The third thing is that, where the United States does have public-debt problems, which is at the level of cities, it has a more or less functional municipal-bankruptcy law. We see that in Detroit, where a process is under way for allocating losses. In Europe this is done largely ad hoc, with no adequate provision for maintaining core public services in the countries that are hit hardest.

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.

Illustration by Lincoln Agnewtodd: 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.



madrick: I wonder if we could focus the question even more narrowly? The last line of defense for the euro seems to be that it has brought peace to a region with a historical propensity for war. Do you think the breakdown of the euro could bring war back to the continent?

galbraith: Upheaval can happen without war. For example, you have a situation in which half the population of Catalonia originates from elsewhere in Spain, especially Andalusia, and the unity of the country, if it’s to be enforced in this situation, would have to be enforced by the Spanish army.

guérot: What is your definition of “war”?

galbraith: Well, that’s exactly right!

guérot: If we think of war only in terms of nation-state sovereignty, I think that’s completely wrong. The definition of “war” in the twenty-first century will probably change. Probably there will be postmodern wars also. There will be energy wars, water wars, pricing wars, trade wars.

gray: We did have a major war in the Balkans, which was a war of all the new nation-states. So there have been serious wars in the past twenty years, and in those wars Europe — in the sense of European political institutions — was completely impotent. Those wars were resolved by American power and nothing else.

lemke: Today, two of the countries of the former Yugoslavia are members of the European Union, and one is a member of the euro zone. Peace is very important for Europeans. The fact that we have not seen wars between historically hostile countries — Britain and France, Germany and Poland, Germany and France — it’s a major accomplishment of civilization. I want to maintain it for my children, for my grandchildren. It’s not something that we should be taking lightly in this discussion. I do think that the fact that the European Union got involved in the former postcommunist countries, particularly in the Balkans, had a tremendous impact on people there. We had projects in Kosovo and Serbia, on deliberation in deeply divided societies. This is not an ideal world, but at least the Kosovar Albanians and the Kosovar Serbs and the Serbs are sitting down and talking today. In Bosnia change is happening as well. I would not replicate the model of power-sharing established through the Dayton Agreement, but at least you do not have violence and military confrontation, and I think that’s the way to go, and in that way Europe can be a model to other regions as well.

todd: I’d love to say a word about war in Europe. For years I talked like everybody else, saying, “Isn’t it horrible that Europe fell into all these wars, and aren’t I glad that we have the European community to stop us?” But there’s a revisionist element in that view of European history, at least for the twentieth century. It suggests that Europeans are just mad peoples who always go to war. But the European twentieth century is much simpler: Germany got crazy twice and started two world wars. In the common presentation of twentieth-century European history, all the countries occupy the same position. It’s just not true. It’s like saying that the Shoah happened everywhere in Europe. No! There was a German problem. The history of twentieth-century Europe is the German problem. Please do not take what I say as anti-German. I never forget what Germany gave to Europe, starting with general literacy and the Protestant Reformation. But this is the truth. If Germany’s a peaceful country, Europe is a peaceful continent.

guérot: And Germany knows this! That is precisely why this time we want to get it right. There is a large amount of political energy among Germans to make the project of Euroland democracy happen, to put German economic weight at the service of a universal European mission.

todd: I’m very happy to hear that, but the fact is that people throughout Europe are starting to hate Germany again.

guérot: This is not true! If you look at the poll just done by Pew on the opinion of European countries toward the euro — except for Spain, Greece, and Italy, all had more than 50 percent of their population approving of Merkel’s handling of the crisis.

It’s the French elite who hate Germany, because they are marginalized and they feel the dominance of the German model, but if you ask any given taxi driver in Paris or in Marseille, what people tend to reply to you is: “I love Germany, it’s a functioning country, and I would like to have my country function like this.”

gray: But the notion that there’s a single model for this vastly diverse — historically and in every other way — continent is a fundamental error.

galbraith: I think it’s absolutely unconstructive to try to understand this question along national lines. If one looks at the principles that founded the German Federal Republic and that drove the unification of Germany, they were principles of social democracy. And those principles are entirely valid and entirely in consonance with much of German public opinion to this day.

guérot: Agreed.

galbraith: And entirely applicable to the solution of the European problem. No question about that. The question then is really one on which Germany and the rest of Europe were once on different sides. You can go back to the Treaty of Versailles, in which the peace that was imposed was a fundamentally destructive debt-collector’s peace that laid the foundations for the Second World War. If Germany now moves to be the Clemenceau of Europe and impose the kinds of terms on Europe that were imposed on Germany after the First World War, Europe will be destroyed for the same reason that Europe was destroyed in the end-of-war period.

guérot: But you can be in favor of Europe without being in favor of Merkel or austerity, that’s my point.

galbraith: You cannot be in favor of Europe without having Germany in the center. It exists at the center, and it will be German leadership that will—

guérot: But Germany will accommodate.

gray: The risk, though, is the glacial pace of events in Europe. There is a very dynamic global geopolitical situation at the moment, which includes as a central element a rapid relative improvement in the position of Russia. While we’re having this introverted European discussion, or introverted European-American discussion, Russia is back with all its weaknesses: excessive dependence on energy markets, demographic problems, corruption, catastrophic criminality.

My experience when talking to Russians about this is that they don’t see things in terms of the past thirty years, or even the past fifty years. They see it in terms of a long series of cycles that involve German and Russian collaboration, and they see a new such cycle already under way now. If the euro disintegrates from its present form and there’s a smaller euro, or we get back to national currencies, one can easily imagine a situation in which Germany’s principal interest is completely impossible to imagine in Europe at all.

todd: You’re moving toward a world where you have again the divisions between liberal cultures in the West and authoritarian cultures in the East.

guérot: So we go authoritarian with Russia and China? That’s what you see? I will do everything I can to make sure my country does not go down that road.



madrick: I want to focus quickly on the effects of all this on the United States. If there’s a collapse of the euro, it probably means serious recession in Europe. It’s hard for me to believe America would escape that. And it probably means serious jeopardy for some major financial institutions here.

lemke: There’s no question in my mind that a collapse of the euro would affect the United States dramatically, more so than if the Chinese economy collapsed, just to have a comparison. Unfortunately my impression is that the European Union as a polity is not very well understood. It’s not simply the United States of Europe.

I wish the American press would do a better job in this respect. On the right you have critics who say the European Union is outmoded, you can forget about Europe, it’s a continent in decline — which is totally wrong if you look at technological developments in the different E.U. countries, and also at the way social policies are set up. The United States has a lot to learn from Europe. And the left — Paul Krugman and others — has been very critical of the European Union, as if austerity were the only economic theory that Europe knows, as if our social policies didn’t exist.

galbraith: I think I’ve made clear that I’m in favor of saving the euro zone for the sake of saving Europe. But on the question of the effects of a crisis on the United States, let me offer a radically contrarian view: I’m looking forward to it. I’m absolutely looking forward to it, in all seriousness. In 2008, we suffered a collapse of the banking system in the United States — a banking system that had been entirely corrupted by massive waves of fraudulent mortgages that had been securitized to, among others, European customers — and the result of that was an enormous retreat from domestic consumption. Is this going to happen again to the American economy as a result of a crisis in Europe? Absolutely not. The commitment to European financial instruments is no longer there. So what will happen is that American authorities, fortified to a certain extent by political experience and Dodd–Frank, will be obliged to take the opportunity they missed when President Obama took office and appointed Timothy Geithner Treasury secretary and reappointed Ben Bernanke. That is to say, instead of bailing out these zombie institutions, with which we have been afflicted for the past five years, they will have an opportunity to resolve them. And that is a huge undertaking, but one that I believe to be absolutely in the interest of a more stable and fair economy in the United States. The effect on business? I bet Germany will continue to ship BMWs to the United States.

guérot: You produce them here. We don’t ship them.

galbraith: Well, ship the parts and so forth. But yes, exactly! We assemble them here! I don’t see how this is going to be dramatically affected. My view is that the important trading relations for the United States are Asia, Canada, and Mexico. These are not going to be destroyed by a European crisis.

Then finally what will happen to the dollar? The dollar will rise. We had a crisis of American finance that produced a rising dollar in 2009 as the whole world fled to United States Treasury bills and bonds. The euro’s position as a reserve currency would collapse. Of course it’s not going to be replaced immediately by the drachma, or even the French franc, and the American household will be able to travel in Europe with an ease not seen since the Fifties. Might even be able to ski in Switzerland!

gray: It’s clearly the case that a European collapse would have large effects — in some respects cataclysmic effects — for American business and American policy, but it doesn’t seem to me at the moment that that’s the largest risk. For example, if Abenomics fails disastrously in Japan, the third-largest economy in the world, if there is an uncontrollable Japanese debt crisis, that would have at least as large an impact.

guérot: But I think this points precisely to the fact that we are not talking only about the euro. We are talking about how to stabilize an international currency system. How do you avoid the effects that one country’s policies have on the world? The United States does quantitative easing, then after a couple of years the rest of the world catches the effects. So the euro problem is only one problem within a bigger context, which is an international currency system within a globalized world. How do we avoid externalizing the effects of domestic policy?

gray: There’s no “we.” Japan has decided to do this regardless of its impact on China or India or America or Europe.

guérot: The world is in search of a big “we,” and that’s the task of the twenty-first century. Europe is the innovative project to rethink the definition of “nation.”

todd: This is all very nice and very German. What we have basically is the destruction of the weaker economies, which doesn’t imply the destruction of the people. The general trend would, I think, rather be a reaffirmation or strengthening of national identities. In a way this is something we missed from the beginning. Germany started first, because of reunification. And so Germany started first, in 1990, with a big national project. Germany is the first re-emerging nation, and this is part of the reason why it is so successful. It is the nation!

guérot: If you look at French history or Italian history or German history, people’s affiliations or affections, in terms of where they come from, have always been regional. The nation is an artificial construct, created in a time and place because of the needs it served. The question is whether we want to hold on to this construct. We can’t have globalization, national sovereignty, and democracy. We have to decide what to skip. I don’t want to skip democracy, and I don’t want to skip trade. That means skipping this outdated notion of national sovereignty.

todd: Let me just close by saying that in France we aren’t so keen on Germans telling us it’s time to lose our sovereignty.

Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, University of Texas, Austin


Associate for Germany at the Open Society Initiative for Europe


Emeritus Professor of European Thought at the London School of Economics


Max Weber Chair in German and European Studies at New York University


Author of Harper’s Anti-Economist column


Historian, social anthropologist, and political scientist at the National Institute of Demographic Studies, Paris

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