I am more and more optimistic these days. I say this even as, or especially because, of the ever-worse economic figures. Even as EU leaders are declaring the “end of crisis” and are hailed by the markets for saying with apparent conviction they’ll “do whatever it takes,” we find out the eurozone’s recession accelerated at the end of last year shrinking -0.6% annually in Q4 and with ever-higher unemployment at 11.9% now spreading even to core countries like Austria and the Netherlands.
Why does this make me optimistic? Here is Emmanuel Todd (one of the few French intellectuals worth listening to):
The euro is not an economic problem but a psychological one. The right comparison is with the Algerian War. Like back then, the ruling classes knew they had failed. But it took four years for de Gaulle to get us out of there. Why can’t we grant the same credit to Hollande? He arrived saying: “I’m going to keep the euro.” Just like de Gaulle had said: “Algeria will stay French.” I have one reason to hope, the interest that Hollande has shown on questions of medical relentlessness [at] the end of life [e.g. not keeping the fatally ill alive beyond all reason]: the euro could be his warm-up!
French Algeria is an interesting example because, whatever one says, it was simply not reasonable to expect that France could subjugate in a postcolonial world 10 million non-citizen Arabs and Berbers forever. Nor was it plausible that French democracy could make them citizens if they were to become 20 or 30 million. These simple facts, in addition to more detailed consideration of the situation, had brought reasonable men like Raymond Aron, who was hardly a sentimentalist on questions of international power and empire, to conclude in a 1957 book that independence was simply inevitable.
But when a ruling class commits a mistake, when it invests the country’s prestige, money, economic livelihood or even its citizens’ very lives, it is often very hard to break out of the vicious circle. The best analogy in this respect is with a war of choice. As John Kerry said of the Vietnam War: How do you ask a man to be the last one to die for a mistake? How do you pull back from a project once you have already asked the nation to sacrifice its blood and treasure?
The comparison with war may seem excessive, but if the stakes are different, the mechanism is the same. Here is former Bank of England official Alan Budd on the difficult decision to devalue the pound against the Deutsche Mark in 1992 and being kicked out of the European Exchange Rate Mechanism (which boosted the UK’s economy but meant huge losses on the money the Bank of England had spent to defend the pound):
I felt as if I knew what it’s like to be a German general at the end of the war, with defeat after defeat and people coming into the room with more bad news. The question is then raised: When do you surrender? In a sense it’s always too late, because if you had surrendered a day earlier, fewer people would have been killed. (quoted in David Marshs The Euro, p. 167)
The fact is, most often, elites (as with individuals) are incapable of admitting their mistakes. They simply push harder and deeper into the cycle of psychological self-preservation and personal self-destruction until they are purely and simply eliminated from power (and sometimes physically eliminated). It’s what happened to Imperial Germany at the end of World War I, to the French Fourth Republic’s politicians during the Algerian War, to East Coast American liberals during the Vietnam War… In a way, and this comparison is usually trite, it is something like ideology-justified-denial-of-reality of Soviet leaders in the 1970s on the state of their economic decadence. And there is nothing more normal than this, as Vilfredo Pareto famously said: history is nothing but a graveyard of elites.
I see no indication that the eurozone is any different. There is no “slow improvement,” economic collapse is continuing despite so-called solutions and concessions. So-called improvements in the situation are derisory: We face at least 5 years of non-growth and recession because the eurozone is legally committed to bring deficits to 0% (from circa 4% now); improvements in terms of the GIPS’ (or France’s ) economic competitiveness relative to Germany are either simply not happening or will take at least 10 years to happen. Any imagined Germany or EU concessions, even after Angel Merkels eventual reelection, are simply utterly marginal to the scale of the changes needed. It’s simply not sustainable. (On the scale of worsening problems and of non-improvement see for example a recent, lucid article by Hans-Werner Sinn.)
The question then is when will national elites choose to admit their error rather than engage in the ritual self-disembowelment we have seen in Portugal, Spain, Ireland and Greece in service to the “European ideal.” Will democratic parties ensure the transition or will they prefer suicide to the shame of admitting error, ceding power to extremists? Perhaps even worse, it is possible that national democratic elites will suicide themselves, but that the euro-elite will survive, indifferent to electoral majorities. Then Europe would be left in the hands of the unsentimental and dogmatic men of the European Commission’s DG ECFIN and the European Central Bank. But I am not convinced this will happen. The case of Italy is encouraging: anti-austerity and anti-euro sentiment go hand in hand (unlike the nonsense of French or Greek leftists, who think they can oppose austerity while staying in the euro).
So I am optimistic. This crisis will end. I am hopeful the nations will regain their economic power and our democracies will then be free to manage the difficult economic adjustment underway worldwide in the best manner, tailored to their own social contract and national circumstances, to preserve political liberty and social cohesion. And more than that: to fully adapt to the ambiguous, confusing economic realities of postmodern capitalism. And, speaking of France, would that not be an inspiring and worthy project for a great nation?
(To be clear: standards of living must fall in Europe, the United States and Japan as the illusion of debt-based growth is dissipated, the question is who bears the burden and whether this is done in a wasteful manner.)