Europe was a bright political project at the formation of the European Community and again when it expanded at the end of the Cold War. Its purpose was not so much power as peace: truly a noble vision. But that noble project was built on an end-of-history economics, on frozen-in-time free-market notions and on dogmatic monetarism linked to arbitrary criteria for deficits and public debt. In the wake of a global financial meltdown, these no longer serve. Unless they are abandoned soon they will doom Europe as surely as communism doomed the empire of the East.Europe's structure is also suspended between two stable formations: the federated nation state and the international alliance. This in-between structure is called a confederacy, and it is something that was tried and which failed in North America on two occasions, most recently in 1865. The South lost the US Civil War, in part, because it left too much power in state hands, and so could not in the end raise the funds or the men required to keep its armies in the field. And following defeat, it took almost seventy years -- until Roosevelt's New Deal in 1933 -- before sufficient measures were taken to begin to overcome the dire poverty and economic stagnation of that region. This history too has been walled off in modern minds.
The distinctive combination of millenarian economic ideas and unstable political structure faced a powerful shock from the global meltdown. Faced with vast holdings of toxic US assets, investors sought to cut their losses by selling weak and small sovereigns: Greece, Ireland, Portugal, Spain. Thus yields soared on those debts, while they fell simultaneously on US, German, French and British bonds. There was no sudden discovery that Greece was ill-managed or that Ireland had had an unsustainable construction boom. Those facts were known. The new event was the meltdown, the flight to safety, and the waves of predatory speculation that have followed.
Today Greece -- under a resolute government and against heavy internal protest -- has met the onerous conditions imposed on it. But for what? For loans that are immediately recycled to the European banks, adding nothing to Greece's prospects except more debt? This will not lower interest rates, restore growth, or bring success to ongoing internal reforms. It is an intolerable situation and it will not continue for long.
Along one road there lies a future of defaults, panic, dissolution of the eurozone, and hyperinflation in the exiting countries, with a collapse of the export markets for those that remain. The final consequence will be large population movements -- as happened from the American South. For if Europe insists on reducing its periphery to poverty, it cannot expect those affected to sit still and accept their fate.
Along the other road lies the assumption of common responsibilities for sustained convergence, based on a new economics of mutual support. Along this path sovereign debts below the Maastricht ceiling will be taken over and converted to European bonds and there will be a public-private investment program to restore growth and employment -- as some of Europe's wisest leaders demanded in a manifesto just a few days ago. There will follow in due course the constitutional reforms needed to adapt Europe and its policies to the conditions of the post-crisis world.
Europe must therefore choose, and soon, as De Gaulle said in 1969, "between progress and upheaval." "Entre le progrès et le bouleversement."
Note EU-Digest: James K. Galbraith holds the Lloyd M. Bentsen, Jr. Chair of Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, the University of Texas at Austin. He is a Senior Scholar with the Levy Economics Institute, and Chair of the Board of Economists for Peace and Security, an international association of professional economists. Galbraith is the son of renowned economist John Kenneth Galbraith
For more: James K. Galbraith: Could Europe's Political Project Go the Way of the US Confederacy?
No comments:
Post a Comment