In Russia there’s a joke about socialism being the longest, most painful route from capitalism to capitalism. I wonder if European union will one day be seen in the same light. Not as the punchline to a joke, necessarily, but as an odd-in-retrospect social engineering effort, one that ultimately foundered on a badly misconceived, technocratic approach to economic policy.
The European project is all about breaking bad habits. Everyone breaks the bad habit of nationalism, by opening their borders to one another’s people, investment, and products. The Germans break the habit of bending everyone to their will, and indeed make up for having done this in the past, by paying for all manner of infrastructure projects, then forking over cash to prop up everyone else’s bonds, once things started to go sour.
In general this process has gone smoothly, and while the political part has been only intermittently democratic, arguably the biggest beneficiaries are the millions of ordinary people who’ve been able to move around in search of better jobs. Mostly this has taken the enterprising working class from poorer countries to richer ones. But plenty of others have taken advantage too – not only are there 120,000 Poles in London, there are more than 400,000 French.
Now comes the tough part. One bad old habit, on the part of a number of countries, was printing too much money. They broke it by giving up the ability to print money at all. Trouble is, printing too much money was a useful if inefficient way to deal with economic slowdowns. Whenever times got tough, governments could print a bunch of lira, drachma, pesetas or whatever. Inflation led to price increases, but also higher tax revenues, which enabled governments to meet pension and other welfare payments, and cover the salaries of state-sector workers. Not incidentally, this also enabled political leaders to satisfy key interest groups, and thus stay in power. Currency depreciation, the natural result of too much of it being in circulation, was fine too for propping up local industry, and thus winning private-sector support, by making its products price-competitive, whatever its inefficiencies or quality problems.
In giving up their currencies, these countries got a number of benefits, not least of which was the ability to borrow money at the same rates as countries that didn’t tend to do such things. This was the painless part, and you can see the results in bond-financed infrastructure projects all around Europe. The painful part comes now, when, to pay not only state employees, pensioners, and all manner of others who depend on the state, but also those who hold all the bonds they’ve sold, these governments can’t just print more money. They have to cut spending and raise taxes. This is tough even in normal times but apparently now politically impossible.
How does this relate to national socialism? The EU and the ECB are not democratic institutions. All the key posts are held by appointees, and because the core countries, primarily Germany, pay the bills, they in turn control the appointments. So whatever the underlying causes of economic collapse in peripheral countries, it’s hard to argue with the perception that some real measure of responsibility lies with decisions taken by appointees put in power by foreigners. That includes the decision not to print more Euros, even in the face of evidence that at least in some peripheral countries, deflation has replaced inflation. Private capital is another easy scapegoat – especially as private, and especially foreign private investors flee peripheral banks, many of which are already weakened by virtue of having taken on so much debt issued by local national and lower-level governments.
Is it so far-fetched to think that more and more politicians will try to make hay by threatening to expropriate private investors who’ve “harmed” local national economies, by, say, taking money elsewhere? Won’t they also call for their national governments to take power back from the EU, restricting trade and the free flow of migrants and capital in the process? That’s already happening, and not only in Greece. All the top candidates in the French presidential election – not just LePen – attacked the rich, with Hollande calling for confiscatory taxes on high incomes, and even Sarkozy attacking tax eliles as unpatriotic. Sarkozy, LePen, and several minor candidates have suggested the reerection of border controls, and radically reduced immigration. It’s to Hollande’s credit that he did neither. But he’s just appointed a “ministry of industrial redress” who’s an outspoken advocate of digiriste industrial policy and deglobalization. Everyone knows about the recent success of the nationalist and socialist Greek far right and far left, but the French political elite seems eager to catch up with their rhetoric. And France is nothing if not a “core” country, in the pan-European system.
A renaissance of national socialism wouldn’t produce anything like Hitler or World War II. Europe isn’t filled with tens of millions of people with deathly bitter grievances against their neighbors, accustomed to settling international disputes with mass violence. Nor should we equate today’s ECB with the Versailles victors. But if the ECB doesn’t ease monetary policy, and EU bureaucrats, hoping to keep countries from defaulting, continues to press for state spending cuts and all manner of revenue-raising measures, a meaningful reaction against technocratic pan-Europeanism will be inevitable. European institutions have no democratic legitimacy; national governments, whatever their problems, do have this. So the anti-Europeanist reaction would have democratic legitimacy. And it would bring politicians rebuilding the power of national governments, along with border stations, tariffs, and currency controls. National currencies too. Even if all these measures are more symbolic than not, they’ll have an inevitable negative economic effect, which, in countries where so many are so dependent on the state, will increase pressure for more state control, and in turn higher barriers against international trade.
Inflation following on the reintroduction of national currencies, sovereign defaults, a sharp decline in international trade, sharp cuts in government benefits, the demonization of foreigners and capitalism, waves of nationalization, and confiscatory tax rates, as politicians respond to anti-capitalist sentiment, and grab for resources to meet growing welfare commitments… Not to mention the possibility of the widespread introduction of harsh immigration controls. Can this be avoided, in the peripheral states? In France? The alternatives are the core countries bailing everyone out, or the ECB choosing a policy of immediate, intensive reflation – i.e. printing a lot more Euros, and committing to keep the money supply growing at a steady, meaningful rate. Neither seems likely to happen.