The fate of the Eurozone is an excruciatingly slow reenactment of The Perils of Pauline. The latest beaming photo opportunity — as another emergency agreement was made last week and more than a score of European national leaders preeningly tried to appear relevant, if not exactly statesmanlike — will be as fleeting a source of comfort and celebration as its many predecessors. The idea of a tightly enforced injunction against any repetition of today’s debt-raddled impotence and chaos, without any suggestion of how to cure the current bout of the affliction, is nonsense. It is so even by the most otherworldly standards of the pandemic Europhoria that has for most of the life of the Eurodream prevented evil from being heard, seen, or spoken.
Last week, I wrote here hopefully of Germany’s imposing a regime in which countries in default would admit the fact, make the best deal they could, and Eurobonds, essentially on Germany’s credit, would be used to alleviate their fate, as long as they took an economic-growth pledge, including work incentives, entitlement reform, and labor-market-flexibility measures. Spanish unemployment is over 20 percent, and youth unemployment in that country is nearly 50 percent, because it is financially punitive to lay anyone off. I still believe in my beatific vision of last week, but still believe it will come in installments.
There is progress, as Germany is effectively taking fiscal control of the signatory countries. There are millions of Europeans who remember yet the echo of the hobnailed jackboots of the Nazi conquerors on the cobblestones of the old Continent. They rightly celebrated the end, with the European Union, of five centuries of squabbling over irredentist patches of territory between the principal European nationalities — Alsace-Lorraine, Silesia, Fiume, Savoy, Danzig, etc. — and endless dynastic and ethnic abrasions. Their stupefaction must now be considerable at delivering themselves into the arms of a benign but exigent German paymaster in the person of Chancellor Angela Merkel, a stout East German chemist and daughter of a Protestant clergyman, flush with Euromarks.
Under the soft-left, twinkle-in-the-eye ministrations of the Bill Clinton of Germany, former Social Democratic chancellor Gerhard Schroeder, the Germans reluctantly — but with Teutonic will that could have earned the kudos, if not the filmic enthusiasm, of Leni Riefenstahl — reformed German labor markets. And Frau Merkel has lightly but determinedly tinkered with the tax structure and fought for simplification, while pulling Germany’s deficit back to just over 1 percent of GDP (an eighth of American fiscal incontinence). By purposeful self-help, Germany now has an economy in which almost half of GDP is in exports, and most of that in very high quality engineered products, the fruit of the enviably diligent and capable German professional and executive elites and work force. In the last five years, German unemployment has declined from 9.6 to 5.5 percent. In today’s world economy, Germany, amazingly, now plays the strongest hand of any country, including China, which is slowing and stumbling with one leg stubbornly mired in the Third World of millennia of backwardness compounded by remnants of the Communist command economy.
France, a naturally rich and proverbially clever, if cynical, country, is the second power in Western Europe, but has accepted the trans-Rhine hegemon in order to ensure German money, via the European Central Bank, for the French private-sector banks that overinvested in debased Euro-sovereign debt. President Sarkozy has commendably increased the work week and the retirement age in the teeth of the usual caterwaulings of the devotees of the minimum-work state, and cut the deficit as a percentage of GDP back almost a quarter, to 5.8. But he has also raised the VAT (a value-added tax assessed largely — with the usual Euro-addiction to Orwellian Newspeak — on items and transactions in which no value has been added) and raised taxes on corporations, the wealthy, capital gains, and home sales.
In terminology widely emulated in Europe (as French style usually is), these are described as measures of “solidarity.” The “solidarity” consists in piling on to the productive sectors and groups of the economy the costs of the social safety hammock that is the Danegeld postwar Europe has paid organized labor and the small farmer. It is debt reduction achieved at the expense of economic growth by forcing productive society to pay more blackmail to the economy’s retardants.
Except for Ireland (which is staging a doughty recovery), Germany, Estonia, Finland, Malta, and Luxembourg, the Eurozone and even Britain (in the EU but not using the Euro) are all dancing to the same tune — though some other non-Eurozone EU countries (the Czechs, Slovaks, and Poles) are not.
But for Europe to be healthy, it must get 50 percent of its people working, up from the present 40 or so percent, and incentivize economic growth and demographic self-renewal so that the Continent becomes economically sustainable and disembarks from the express train to demographic extinction (and Islamization). For these goals to be approached, Germany had to take control. And the countries not already too far down the well — the British (barely) and perhaps some of the others in the outer EU, non-Eurozone tier — are peeling off and taking their distance from the whirlpool. These are favorable signs: Germany taking charge and “sauve qui peut.”
At this point, all that is publicly pledged is more money for the stabilization funds, more generously accessible, and the pledge to fiscal responsibility is to be enforced, with hilarious implausibility, by the European court. But Frau Merkel and her tight-fisted finance minister, Wolfgang Schäuble (wheelchair-bound because of an assassination attempt), have shown no disposition to violate Gresham’s Law and throw good money after bad. They have rejected flim-flam such as lending money to the IMF for passage on to the tapped-out Euro countries. On past form, Chancellor Merkel will layer on more and more conditions before actually allowing German credit to be used to prop up insolvent regimes.
The most intriguing aspect of this complicated minuet is the reversal of traditional roles. France approached China for financing (which, if agreed, would have included some such condition as having the Chinese leadership drawn through the streets in rickshaws pulled personally by members of the French Academy); Portugal has asked Angola, its oil-rich, and formerly desperately poor, rebellious, and war-torn colony, for assistance. And not to be left out of the Euro-opéra bouffe, Russia’s Premier Putin has accused Secretary Clinton of generating protest demonstrations in Moscow against his fraudulent parliamentary elections.
And perhaps the most irritating development in this sequence is the presence of Treasury Secretary Timothy Geithner hopscotching across Europe, urging his hosts to replicate the American model of simply debasing the currency. The dollar and the Euro, according to the U.S. government, should regress to drachmas, lire, and pesetas together. The Europeans, for all their addled fables about Eurointegration and a conscientious paradise of social-democratic states (so admired by President Obama), have, under Germany’s iron leadership, maintained a strong and hard currency. American agitation to dilute it is disgraceful; bad advice in itself, annoyingly advanced by people in no position to counsel anyone on monetary and fiscal management. (A reliable currency was, along with national defense and an indissoluble Union, one of the reasons given by George Washington and Benjamin Franklin for convening the Constitutional Convention in 1787; this administration is in violation of that national raison d’être.)
I continue to adhere to my prediction of last week, that Germany will agree to attach life-support systems to the Eurocountries that need them only when the reforms necessary for economic growth and deficit reduction have been adopted. France, which is not a basket case and merely needs access to backup for its mismanaged banking sector, can easily be accommodated.
There is some parallel between the evolution of Franco-German and Anglo-American relations. The 19th-century British and postwar French started as senior partners, but as strategic facts changed and asserted themselves (U.S. growth and German reunification), the roles shifted. And instead of conducting a tutorial in world affairs for the junior partner, the French opposite the Germans, like the British with a risen America, now consider and represent their greatest strategic strength to be their special intimacy with their former sidekick. As financier and politician Sir James Goldsmith put it in 1996, “France thought it could ride the German stallion, but will discover that it is only the stable boy.”
The wild card in this process is: Whither Britain? If their economies were measured in the same currency, Britain would pass France as the world’s fifth economy (after the U.S., China, Japan, and Germany). It could go back to leading a Euro outer tier, with Norway, Switzerland, the Czech Republic, and Poland, and could also do something with the leading Commonwealth countries (which it shabbily deserted in its initial Euroenthusiasm), especially Canada, Australia, India, New Zealand, and Singapore. It is not obvious that any relevant party possesses the imagination to pick up these pieces and connect them. But maintaining independent currencies in a cooperative bloc totaling a joint GDP of over $6 trillion — and enjoying free-trade arrangements with the EU and the North American Free Trade area, without the absurd overregulation of the Euro-nanny — has an appeal and a logic.
There has been almost no such imaginative statesmanship in the Western world in recent years, unless, as I suspect, Chancellor Merkel is advancing stealthily but sure-footedly to remake Europe in the competitive image of her country, in fulfillment of former chancellor Helmut Kohl’s lapidary pledge and vision of “a European Germany and not a German Europe.” In Europe, something useful is happening. In policy terms, unfortunately, the United States is the sick man of the West.