Wednesday, July 4, 2012

We had a dream ...


It used to be an old dream: the union of european countries - an europe without wars, a land of peace.
My generation surprisingly had made it: one step after the other, a deeper union of the european countries has been built along the years, and its borders have enlarged. From the initial 6 western countries to the present 27 countries - including ex- communist eastern countries, something few people in 70's and 80's (and even first half of 90's) may have dreamed to see happening during his life. From the free mouvement of goods and people to the eurozone and Schengen space. Decades of prosperity and peace, seventy years after World War II and when the wars in Balkans seem to have been sorted out largely under the influence of EU. 
The dream had become true, and it seemed to be working. Euro seemed a unique success. Peripheral countries, like Portugal, profited handsomely from joining the euro, in part due to low cost of sovereign debt. Debt was easier and peripheral countries did what they were expected to do: to accelerate the social and physical development of their people and land. Thanks god, the stock of infrastructures improved dramatically. 
Until crisis arrived when a sudden and dramatic change in economic climate happened. 
But not only changes in the economic climate. Meanwhile it was not only UE borders that have enlarged. Germany itself has changed: integration of eastern Germany took years and a lot of EU solidarity. Bur the after integration Germany is proving to be a different country with a different power balance and perspective: not only larger, but different. Its geostrategic positioning may be changing: more eastern oriented, less western friendly. New generations of political leaders emerged, with very different personal backgrounds and political culture.
Now these are hard times. Problems in the design of euro currency become visible in the present economic and financial environment. The north - south divide may be menacing EU unity, as well as euro - non euro divide. Some countries seem to be considering precautionary measures. May be Germany is or will consider exiting the euro (and EU?). Britain leaders seem to be positioning for the day after. And peripheral countries (including Portugal, Spain, Italy, Ireland and even Greece) may be paying un unfair price for the rigidities of a flawed euro currency, largely driven and leaded by Germany.
Is this the end of the dream?
Yesterday a very grey leader, Durão Barroso, made a unusual strong and emotional speech in European Parliament. A note should be made. This looks like an important moment.  Even NYT made a note of it:
  • Mr. Barroso’s comments broke an atmosphere of optimism and relative calm that had prevailed after the summit meeting at the end of last week
Barroso recalled the ghost of war in europe in very clear words:
  • "Those who know European history know how negative was the role of prejudice and the complex of superiority of one part of Europe over the other”

II. THE CRISIS as seen from America

In the same day Barroso was addressing European Parliament, Amartya Sen, from Harvard, and Nobel prize in economics, published a strong op-ed in The Guardian titled "Austerity is undermining Europe's grand vision". Subtitle is clear: "Economic policy is triggering disaffection among nations – the very thing the pioneers of unity hoped to erase":
  • The problems we are seeing in Europe today are mainly the result of policy mistakes: punishments for bad sequencing (currency unity first, political unity later); for bad economic reasoning (including ignoring Keynesian economic lessons as well as neglecting the importance of public services to European people); for authoritarian decision-making; and for persistent intellectual confusion between reform and austerity. Nothing in Europe is as important today as a clear-headed recognition of what has gone so badly wrong in implementing the grand vision of a united Europe.
And another Nobel Prize, Joseph Stiglitz (now at Columbia University) posted in Project Syndicate, in the same day:
  • Like an inmate on death row, the euro has received another last-minute stay of execution. It will survive a little longer.
  • It is deeply troubling that it took Europe’s leaders so long to see something so obvious (and evident more than a decade and half ago in the East Asia crisis). But what is missing from the agreement is even more significant than what is there.
  • the remedies – far too little and too late – are based on a misdiagnosis of the problem and flawed economics.
  • investment will decline – a vicious downward spiral on which Greece and Spain have already embarked. Germany seems surprised by this. Like medieval blood-letters, the country’s leaders refuse to see that the medicine does not work, and insist on more of it – until the patient finally dies.
  • Indeed, it is remarkable that there has not been more capital flight. Europe’s leaders did not recognize this rising danger, which could easily be averted by a common guarantee, which would simultaneously correct the market distortion arising from the differential implicit subsidy.
  • The euro was flawed from the outset, but it was clear that the consequences would become apparent only in a crisis. Politically and economically, it came with the best intentions.
  • Europe’s temporizing approach to the crisis cannot work indefinitely. It is not just confidence in Europe’s periphery that is waning. The survival of the euro itself is being put in doubt.

III A VOICE from Germany

Europe dream may be in danger. Did the spell turned against the sorcerer?
Last January, Joschka Fischer (German Foreign Minister and Vice Chancellor from 1998-2005) wrote that
  • If Merkel’s government believes that paying lip service to growth is enough, it is playing with fire: a euro collapse in which not only Germans would be badly burned.
End last May he wrote some unusually dramatic words in the closing of an article titled "The Threat of German Amnesia":
  • Indeed, rarely has Germany been as isolated as it is now. Hardly anyone understands our dogmatic austerity policy, which goes against all experience, and we are considered largely off-course, if not heading into oncoming traffic. It is still not too late to change direction, but now we have only days and weeks, perhaps months, rather than years.
  • Germany destroyed itself – and the European order – twice in the twentieth century, and then convinced the West that it had drawn the right conclusions. Only in this manner – reflected most vividly in its embrace of the European project – did Germany win consent for its reunification. It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time.
What may the real meaning and motivation behind yesterday Barroso speech? 
We had a dream, and we have lived the dream. Too good to be true?
I hope we can still dream.

(Italics and bold, our responsability; Photo: embassy of Portugal in Paris, june 2011)

(Update, 5th July: Fischer has just published a new post in Project Syndicate, Europe's winners and loosers:
  • Both sides will have to decide whether or not they want Europe – that is, full economic and political integration. Economically, they must choose either joint liability and a transfer union or monetary re-nationalization. Politically, the choice is whether to empower a common government and parliament or return to full sovereignty. What we know for certain is that, just as one cannot be a little pregnant, the existing hybrid is not sustainable.)
(Update, 6th July: it seems that preliminary and maybe exploratory moves to test possible exits from euro common responsibilities are visible not only in Germany and UK, but also elsewhere: Finland seems to be now the case - even if claiming it otherwise. See Finland Would Rather Exit Euro Than Pay for Others, in WSJ. Finish finance minister has said:
  • "Finland will not hang itself to the euro at any cost and we are prepared for all scenarios."
  • "Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for")

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