Friday, July 1, 2011

The European Experiment in context

As Canadians celebrate Canada Day on July 1 and my American friends celebrate Independence Day on the 4th this weekend, I thought it would be useful to reflect upon Greece and the EU by putting the European Experiment in context.

STRATFOR wrote a great essay called The Divided States of Europe that gives some context to the problems in Greece. I have found them useful at times for analysis, but more importantly, their viewpoints often reflect an Inside the Beltway view of the world that offers a window on how the Washington elites think about geopolitics. The Divided States of Europeis is republished with permission of STRATFOR and they state that Greece's financial problem is a problem of economic integration without political integration [emphasis added]:
It is important to understand that the crisis is not fundamentally about Greece or even about the indebtedness of the entire currency bloc. After all, Greece represents only 2.5 percent of the eurozone’s gross domestic product (GDP), and the bloc’s fiscal numbers are not that bad when looked at in the aggregate. Its overall deficit and debt figures are in a better shape than those of the United States — the U.S. budget deficit stood at 10.6 percent of GDP in 2010, compared to 6.4 percent for the European Union — yet the focus continues to be on Europe.

That is because the real crisis is the more fundamental question of how the European continent is to be ruled in the 21st century. Europe has emerged from its subservience during the Cold War, when it was the geopolitical chessboard for the Soviet Union and the United States. It won its independence by default as the superpowers retreated: Russia withdrawing to its Soviet sphere of influence and the United States switching its focus to the Middle East after 9/11. Since the 1990s, Europe has dabbled with institutional reform but has left the fundamental question of political integration off the table, even as it integrated economically. This is ultimately the source of the current sovereign debt crisis, the lack of political oversight over economic integration gone wrong.
The last time Europe at the height of political and economic integration was in 1942 under Hitler's Nazi Germany - and look at how that experiment turned out. STRATFOR went back in history and found a parallel of economic integration without political integration, namely the United States after her War of Independence:
The best analogy for the contemporary European Union is found not in European history but in American history. This is the period between the successful Revolutionary War in 1783 and the ratification of the U.S. Constitution in 1788. Within that five-year period, the United States was governed by a set of laws drawn up in the Articles of the Confederation. The country had no executive, no government, no real army and no foreign policy. States retained their own armies and many had minor coastal navies. They conducted foreign and trade policy independent of the wishes of the Continental Congress, a supranational body that had less power than even the European Parliament of today (this despite Article VI of the Articles of Confederation, which stipulated that states would not be able to conduct independent foreign policy without the consent of Congress). Congress was supposed to raise funds from the states to fund such things as a Continental Army, pay benefits to the veterans of the Revolutionary War and pay back loans that European powers gave Americans during the war against the British. States, however, refused to give Congress money, and there was nothing anybody could do about it. Congress was forced to print money, causing the Confederation’s currency to become worthless.

The problem eventually became Greek-like:
Nothing brought this reality home more than a rebellion in Western Massachusetts led by Daniel Shays in 1787. Shays’ Rebellion was, at its heart, an economic crisis. Burdened by European lenders calling for repayment of America’s war debt, the states’ economies collapsed and with them the livelihoods of many rural farmers, many of whom were veterans of the Revolutionary War who had been promised benefits. Austerity measures — often in the form of land confiscation — were imposed on the rural poor to pay off the European creditors. Shays’ Rebellion was put down without the help of the Continental Congress essentially by a local Massachusetts militia acting without any real federal oversight. The rebellion was defeated, but America’s impotence was apparent for all to see, both foreign and domestic.

The Why of the European Union
STRATFOR went on to discuss the centrifugal forces tearing Europe apart [emphasis added]:
The current political and security architectures of Europe — the EU and NATO — were encouraged by the United States in order to unify the Continent so that it could present a somewhat united front against the Soviet Union. They did not grow organically out of the Continent. This is a problem because Moscow is no longer a threat for all European countries, Germany and France see Russia as a business partner and European states are facing their first true challenge to Continental governance, with fragmentation and suspicion returning in full force. Closer unification and the creation of some sort of United States of Europe seems like the obvious solution to the problems posed by the eurozone sovereign debt crisis — although the eurozone’s problems are many and not easily solved just by integration, and Europe’s geography and history favor fragmentation.

That is where I depart from STRATFOR's analysis, where their inside the Beltway analysis is a little too trite and simple. It does not appear that STRATFOR understands the centripetal forces holding Europe together.

After the Second World War, Western Europe surveyed the wreckage and collectively decided "never again". In the 200 years preceding that war, Europe had been wracked by conflict (WW II, WW I, Franco-Prussian War, Napoleonic Wars) and the main source of conflict was between France and Germany, or the Germanic states before their unification. When Western Europe said "never again", they devised a solution that bound the French and the Germans so tightly that the devastation of war on the European Continent would be stifled, hopefully forever. That solution was the EC, which became the EEC and now the EU.

Politically, they have largely succeeded. Today, if Angela Merkel mobilized the Bundeswehr and told the troops, "We are going to war against the French", the men would all laugh and go home. Compare that result to the cost of the Battle of Verdun of 300K dead and another 500K+ wounded and you will start to understand why the EU was formed.

Europe's challenge today
The European experiment began with economic integration - a Common Market. Political integration was much harder and would have to wait. The adoption of the euro as a common currency was just another step in that path, but it turned out to be a serious mis-step.

Today, we are facing the European equivalent of a Shays Rebellion. The problem of the lack of political integration has surfaced with a vengeance. It will be up to Europeans to resolve this for themselves.

To say that the euro is at an end as a common currency is overly simplistic analysis. In many ways, the EU was paid by blood - just remember the price paid at StalingradVerdun and Napoleon's retreat from Moscow, just as some examples.

Don't count the European Experiment as over just yet.


keithpiccirillo said...

What a mix of cultural, religious, political, and economic fighting.
Cypress is a potential flash point between Greece and Turkey.
EU should try to think creatively about fast tracking Turkey in, but there was not even a mention of them in yesterday's budget.

Boudewijn Koole van Brigdamme said...

Thank you so much for your splendid historical insight. Nevertheless it might be true that the future of Europe does not only depend on how deep the memories of the past influence it. For many lower and middle class Europeans it is not clear how this future could be given form and reality without the loss of identity and (economical or political) 'security'.
You may be right in assuming that all Europeans together - or rather most of them - will choose for this security together with each other, even against heavy political and economical restructuring costs, and not just for shortsighted financial support or subsidies as had become usance for a decade or two.
The situation is critical but indeed there are also a lot of Europeans thinking in your line. The question is: will they prevail and get their wishes fulfilled?

Warm greetings,

Boudewijn Koole (Netherlands)