Europe must toughen up

CHRISTINE Lagarde, managing director of the International Monetary Fund, gave an interview to the Guardian last Friday. In it, she offered some advice to the people of Greece. A succinct summation: “Stop whining.”

She says that when she thinks of the Greeks, she has sympathy for their plight, but: “Do you know what? As far as Athens is concerned, I also think about all these people who are trying to escape tax all the time.” And there is greater sympathy for the absolutely poor: “I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time.”

Lagarde does not in the least resemble my mother, except in one thing: When, as a child, I would whine “I don’t like it” about food she had prepared, she had a stock reply: “There’s some wee boy in Africa that would be glad of that!” (I would have been glad if he had had it – my mother was fond of tripe and couldn’t grasp my hatred of it.)

Lagarde is on the same track as my mother: Remember, in your refusal, that there are many who are infinitely worse off than you. Lagarde’s target was ostensibly Greece, but her real aim was at the countries of the West, including her own, that in the last two decades have luxuriated twice. First, in being the victors in the Cold War, as they watched their systems of a free market and democratic politics be judged superior by erstwhile enemies.

Later, in enjoying a boom which, with blips, saw all boats rise, even as the super-yachts rose (and rise still) further and faster than the smaller craft.

Put simply – and in the welter of competing complexities with which we, especially those of us in Europe, are confronted, something should be simply put – the West, and particularly most of Europe, has made its beds too soft; and now no one can lie on them. We must exchange fluffy for harder, thinner mattresses, and we must hope it will be good for us.

There are exceptions. Although a receding tide beaches all boats, some countries are much fitter than others. Of these, Germany (among the larger countries) and Finland (among the smaller) stand out. Both conduct themselves with a blend of social democracy and bourgeois propriety, a mixture that emphasises hard work and self-improvement, as well as a broadly egalitarian ethos.

There is too little of this elsewhere in Europe. Weak and partly corrupt governments in Greece were unable or unwilling to make its citizens observe their civic duties, including paying tax. In the past two decades, Italy’s dominant politician, Silvio Berlusconi, debauched an already wildly self-serving political class, in which the opposition was too split and uncertain to offer an alternative governing narrative. Spain and Ireland allowed property bubbles to grow huge. Britain racked up a vast external (both public and private) debt, second highest in the world in absolute terms, at nearly $10 trillion after the US’s near $15 trillion.

The weaker economies needed to make large structural reforms, but those they did make were small and inadequate to the task. Yet for the 1990s and the 2000s, the closer union ushered in by the 1992 Maastrich Treaty and the waves of cheap credit allowed the unreconstructed states to disguise their problems with cheap credit.

The euro, which came into service on January 1, 2002, and is now the second most widely traded currency (after the dollar), now reels. In a recent conversation with Martin Wolf of the FT, the US economist and New York Times columnist Paul Krugman said of the eurozone that:

I think it was basically fated, from the day the Maastricht Treaty was signed … the setup is fundamentally not workable. What’s interesting is that the euro itself created the asymmetric shocks that are now destroying it (via the capital flows it engendered). Not only have they created something incapable of dealing with shocks but the creation engendered the shocks that are destroying it.” (Emphasis mine.)

Krugman’s point about the incapacity of the zone to deal with its problems is the largest reason why the Brits and Americans are getting an easier ride than many members of the zone itself. The issue is as much political as economic: a fear on the part of the markets that the institutions for dealing with the crisis exist outside the zone. With each crisis meeting that passes with no solution, and with each forecast that a Greek exit is likely, that fear deepens.

We Europeans – in and out of the zone – are trapped, as the Economist put it, between “separate or superstate … one road leads to the full break-up of the euro with all its economic and political repercussions. The other involves an unprecedented transfer of wealth across Europe’s borders and, in return, a corresponding surrender of sovereignty.”

Characteristically, the magazine had a solution: a moderate version of “more Europe,” which it admitted was “tricky.” More Europe – that is, greater fiscal and oversight powers centralised in the European Commission – would, on most analyses, certainly be tricky. It would be less disruptive to the European and the world economy than a breakup, which would be very bad news for everyone. But Europe’s desire to create even a modest version of a superstate is presently lacking. And if it were found, it would have to ride a storm – social, economic, and above all political: even violently so.

Politically, what must happen in a “superstate” of any version is that weak and little-trusted European Union institutions would have to take upon themselves more power. But all the indications are that Europeans want them to have less. These centralised bodies would be committed to guide a large part of a continent through very rocky economic times for the foreseeable future; at the same time, they would need to develop a cadre of politicians and officials who could speak and appeal, not just to their co-nationals but to the “Europeans” – a diverse set of peoples with many languages, with something of a cultural identity but a very weak political one.

Joe Nye, the Harvard professor who invented and constantly develops the concept of “soft power”, the ability of states to project values and culture, said during a talk at a dinner organised by the European Council on Foreign Relations in London last week that the euro crisis had “exposed the limited trust among member states.” He rejected the parallel made between the US today and the declining Roman Empire (he said American decline was relative but not absolute) and asked a different, uncomfortable question: Is it possible that Europe, not America, is more like the Roman Empire in decline? Are Europeans, too, disintegrating from within?

Will our culture and an educated view of our ultimate self-interest see us through, and keep us from the fate of ancient Rome?

Only if we heed the strictures of Lagarde, who implores that we observe the really poor, remember our luck and pay our taxes. “Europeans” need enough solidarity to forgive the mistake that was the careless creation of the euro, avert our minds from the undemocratic capture of centralised power that a concerted response to the crisis requires, and keep taking a medicine that politicians we hardly know would administer.

That is a very, very tall order, but it is the order of the day.