It's not the economy, it's politics, stupid!

As I am writing this text, European economies are falling like dominoes. The yield for Irish bonds is skyrocketing as compared to the returns investors get for the German bonds they hold. Tomorrow may be Portugal´s and Spain´s turn. The day after we could be talking about Italy.

European countries are either frantically cutting public expenses or negotiating multi-billion Euro rescue packages with the main international institutions, including the EU and the IMF. Some of them are doing both things at the same time, though markets will not give them a break, despite such draconian measures. Nearly all countries, even the ones better off, have experienced a regress in their real income. So to speak, we all are poorer now.

The late twenties and early thirties of the twentieth century witnessed a world-wide crisis much more severe than the current financial turmoil, one that conjures up Steinbeckian images of whole families roaming the US looking for jobs amidst widespread famine. That was a social and economic crisis that in Europe turned out to be a major political crisis as well, which did away with the old liberal regime and helped usher in Fascism and Nazism. Americans confronted the crisis with a Keynesian program avant-la-lettre based on public works, governmental spending and subsidies -Franklin D. Roosevelt´s New Deal-, which proved to be a huge success and marked the start of the American welfare State.

 After the Second World War, a Europe in ruins forged its way out towards growth and recovery when grand public programs were put in place, such as the Marshall Plan, or national fiscal plans, such as the Beveridge Report, that gave birth to the modern British welfare State and created jobs, provided income to an impoverished population and later evolved into the advanced welfare States we have come to associate European nations with.

One may wonder how is it possible that one of the richest regions in the world is in such a mess, and despite its sophisticated policy tools and coordination instruments, cannot even contain the damage, not to mention avoid it. Why are the powerful EU member-states content with merely weathering the crisis, and this is only in a best-case scenario?

One explanation is globalization and the interconnectivity of financial markets, which makes it difficult for individual countries to fight their way out of recession. However, most serious financial crises have always been global, so that is only part of the story. The fact that the members of the Eurozone cannot devaluate their currencies to make their economies more competitive carries more weight, somehow, but still accounts for only part of the problem. Very recently, the EU has been trying to put in place complex bailout and default schemes, keeping in mind the risk of the very Eurozone perishing if they don´t succeed (see Kurt Huebner´s piece “Eurozone in Survival Mode: the Game is on” below). However, this strategy seems to have serious flaws in terms of timing and flexibility, and hasn´t appeased the markets thus far.

As things stand, it seems certain European countries can only make enormous sacrifices to save their economies. But those efforts will not only tackle the deficits, they are also going to transform their societies in a significant way. And, while some of these changes may improve the overall efficiency of the social policies implemented in these countries, there might well prove to be nothing left of the European social model in them after these gigantic cutbacks to start with.

This argument, however, should be set against the political infeasibility of trimming back the Welfare State in such a scale, but this is exactly what we are witnessing in Ireland or Great Britain, for instance. Although the measures will surely entail electoral losses for the parties currently in power, it’s doubtful the oppositions could act any differently.

Is there any other way out?

Perhaps yes, but only if domestic leaders ceased to focus only on their narrow national interests -often at their own individual interests as politicians- and started thinking in European terms. A leader leads. A European leader leads in the whole EU. A true European leader doesn’t hide behind national opinion polls, but reaches across borders and explains, persuades and makes decisions, and then implements them. True leaders build consensus, and true European leaders appeal to a wider audience, one much bigger than their own constituency, and with a resolution that doesn’t carry the prize of an immediate electoral gain.

In this regard, it is revealing that when the European Council elected two minor figures as leaders of the EU -Herman Van Rompuy as President of the European Council and Catherine Ashton as Higher Representative of the Union for Foreign Affairs and Security Policy- in 2009, it was somehow choosing the opposite route. That is to say, a weak European leadership barely fit to introduce a long term, EU-wide perspective on the policy-making process, a realm in which all important decisions would now be mainly the result of a bargaining exercise among the major national leaders.

I contend that the key behind the successful action plans in the 1920s and in the postwar period was not an accurate, highly-evolved macroeconomic formula. What these projects contained was a great deal of political will. The governments that implemented them rebelled against the idea of yielding to mass poverty and to the prospects of generations being sacrificed until the recession disappeared. Also, they acted with a sense of patriotism, which, in turn, implied taking the achievement of social cohesion and decent standards of living for all citizens seriously. It also implied that governments would not permit whole regions or parts of their populations to fall.

Do current European leaders argue that we cannot let Greece or Ireland fall, not because it would endanger our monetary union, but simply because their citizens are as European as those of Denmark or The Netherlands? On the other hand, could we imagine an American president stating that, say, Idaho´s or Nebraska´s problems are only their own, and that these States are not entitled to the benefits of Federal programs, that is, to some degree of solidarity from the Union? No, because the US, despite its size and diversity, is a polity, and polities are defined by a sense of common belonging and the institutions required for the materialization of this common feeling.

Granted, Europe is in economic trouble. However, its political problems are worse. Because Europe is not a polity, and though it has the power to acquire the instruments it needs to keep its prosperity and maintain its standards of living, we are not likely to see that happening in the near future.

However, if the ultimate goal is not only to save the EU but also a certain idea of the EU, that of a prosperous region with a high standard of living, a common sense of belonging and fewer social differences among countries and peoples, is there any alternative to Europe becoming more and more of a polity and acting like it?

This task is more arduous than the current efforts to get out of the economic crisis, and requires both a concerted, pan-European political effort and long-term vision. It will also be the work of more than one generation, and will be developed not only in the political field, but also on the social, economic and cultural ones.

A daunting task, but it’s either this or no Europe; or, at least, not Europe as we have known it.

Francisco Beltran
Researcher
Institute for European Studies

Photo: Great Depression soup line