Saturday, July 28, 2012

The end of the European dream

The European debt crisis is making the front page, again. Moody has changed the outlook of Germany to negative and Spain is forced to borrow at more and more unsustainable rates. The fate of the Euro is more and more uncertain and while it is not certain, it is quite possible that Greece, and perhaps other Mediterranean countries, will abandon it at some point of the future. This, of course, would trigger a trust crisis which would in turn further damage the position of a currency which has no need for that. The value of the euro would fall and the chance of some state going bankrupt would greatly increase.

Of course, and contrary to what many doomsayers would like to believe, states can and do survive bankruptcies. Those familiar with the history of Denmark will remember, for instance, that Christopher II of Denmark pawned nearly his entire kingdom to German magnates between 1320 and 1332. Yet Denmark still exists and is still a kingdom. You see, states have an enormous advantage over corporations : they generally command the loyalty of their subjects and can therefore tax and draft them.

That is what Christopher’s successor, Valdemar IV, did. He used his wife’s dowry to get back some mortgaged lands he overtaxed to repay the rest of his debts. When that didn’t suffice...well, a royal army in full array could be very convincing.

Closer to us, when the Bolsheviks seized power in Russia, they decided to repudiate the Tsar’s debts, which caused a lot of complaining back in France (and still does, to some extend), but hardly more. States have defaulted on their debts or printed banknotes to inflate their way out of them. This is not without consequences, some of them drastic, but it certainly beats letting bad debts accumulate and smother your economy.

Those are, however, political decisions and that’s exactly the kind of decision the European Union has been designed to avoid.

Western European Civilization, of which the European Union is the last incarnation (possibly as in Llywelyn the Last), formed during the dissolution of the Western Roman Empire from the fusion of Germanic and Roman culture under the Catholic Church. Unlike Chinese civilization, in which the unity of “everything under heaven” is an imperative and India, which hardly cared about political unity until it was forced upon it by the British Empire, Western Europe has always considered unification as a worthy goal, but consistently failed to achieve it.

The attempts at restoring the Western Roman Empire met with limited success. Justinian reconquered northern Africa and Italy, but failed in Spain. Charlemagne was crowned Roman Emperor and recognized as such by Byzantium, but held neither Britain nor Spain. Charlemagne’s empire fell to civil war in 843 and its successor states were promptly besieged by Vikings, Hungarians and Bretons. Its existence, short as it was, enabled, however, the imperial idea to survive in both the Papacy, which came to consider itself as the supreme authority in Western Europe, and the Holy Roman Empire, which claimed the legacy of Charlemagne.

As often happens, the Papacy and the Empire undermined each other’s legitimacy during the Investiture Controversy, a long struggle between Pope Gregory VII and Henry IV, Holy Roman Emperor (and their respective tame intellectuals) over who would appoint bishops.
While the Pope came out the victor with the Concordat of Worms in 1122, the Investiture Controversy paved the way for the affirmation of the kings (notably those of France and England) against both the Emperor and the Pope. As soon as in the XIIIth century, the French king declared himself “Emperor in his own kingdom”. At the very beginning of the XIVth century, after the convenient but officially natural death of Boniface VIII while he was negotiating with the king of France’s special envoy Guillaume de Nogaret, the pope recognized the authority of Philip IV over the Church of France in temporal matters.

When the Reformation fractured until then spiritually united Europe, the sovereignty of the kingdoms was too well established to be contested. This does not mean, however, that the idea of an European Empire had been abandoned. The Hapsburg of Spain and Austria during the XVIth century, Louis XIV of France during the Spanish Succession War and finally Napoléon Bonaparte tried to recreate it, under one form or another, and failed. The order the victors imposed at the Congress of Vienna in 1815 explicitly repudiated the imperial idea and was based upon a balance of power between the big European dynastic states and a guarantee of independence for the smaller players.

As the imperial idea seemed to recede in the background, a new conception of European unification appeared, which would lay the groundwork for the modern European (anti-)Union.

In 1795, the German philosopher Immanuel Kant authored a small book titled "Perpetual Peace: A Philosophical Sketch", in which he argued that war could be made to disappear through a new international order based upon the generalization of republican governments and the institution of the rule of law at the international level.

Obviously Kant’s ideas were not immediately implemented, but they laid the foundations for what one might call an "international liberalism", based upon the refusal of international war, as its “mainstream” counterpart was based on the refusal of the ideological civil war. In both cases, the idea is that the only way to keep people (and countries) from killing each other is to appeal to their egoistical interest, by using the twin tools of the free market and the abstract law. One finds this idea, for instance, in Norman Angell’s (in)famous pamphlet The Great Illusion, which argued in 1909 that war was now futile due to the formation of a global market.

The European Union, as it was created after the horrors of Nazism and the colonial wars, is, to date, the most achieved implementation of this principle. The predecessor of the European Union, the European Coal and Steel Community, was formed in 1950 to prevent another round of European wars (in itself a worth goal), through the creation of a common market for coal and steel.

To quote the then French Foreign Minister Robert Schuman :

The solidarity in production thus established will make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible. The setting up of this powerful productive unit, open to all countries willing to take part and bound ultimately to provide all the member countries with the basic elements of industrial production on the same terms, will lay a true foundation for their economic unification.

[…] In this way, there will be realized simply and speedily that fusion of interest which is indispensable to the establishment of a common economic system; it may be the leaven from which may grow a wider and deeper community between countries long opposed to one another by sanguinary divisions.

By pooling basic production and by instituting a new High Authority, whose decisions will bind France, Germany and other member countries, this proposal will lead to the realization of the first concrete foundation of a European federation indispensable to the preservation of peace.

[…] In contrast to international cartels, which tend to impose restrictive practices on distribution and the exploitation of national markets, and to maintain high profits, the organization will ensure the fusion of markets and the expansion of production.

The two initiatives which could have oriented the future European Union in a more political direction (the European Defence Community and the European Political Community) failed during the mid fifties and all subsequent treaties, even though they entailed significant sovereignty loss for the member states, followed the logic exposed by Robert Schuman’s declaration, that is the construction of a common market, managed by an administration according to an agreed upon body of regulations.

Of course, an administration is emphatically not a political body. It does not set policies. It applies treaties as interpreted by the court of justice. It is a headless body, but a very powerful headless body which makes very difficult for member states to promote anything but the creation of a common market where the possibility of a meaningful political decision has been reduced to almost nothing.

The poster child for this is, of course, the European Central Bank. It is independent and receives no order from either member states or the other European institutions. At the same time, however, being an administrative body, it cannot change policy. By statute, it must keep price stability, whatever the situation and at any cost. Inflating the euro, and taking political responsibility for it, is simply beyond its capacities.

Of course, further “federalization” won’t solve the problem, as this would mean, in the present context, giving the European administration more power to curtail the political actions of member states, without giving it the power, or the the legitimacy, to set policies of its own.

Fans of Isaac Asimov will remember the Second Foundation's undead empire, created by calculation and ruled by calculation.

The problem, aside from the fact that an unelected, unanswerable elite is always bad news, is that such a system can work only in periods of sustained growth. You see, if the cohesion of your society is only based upon a promise of ever increasing prosperity... well, let’s say you’d better deliver.

With peak energy, economic growth is becoming more and more difficult to achieve. There may be still some efficiency gains to be made, but on the whole, the only way to create real wealth (not the administrative spending included as wealth in GDP measuring) is by taking it from a neighbor. That is what happens at the global level with the rise of China and the use of the financial economy by the USA to extract wealth from their periphery. That is what happen at the European level with the Euro acting now as a wealth pump, funneling the resources of the south toward France and Germany.

That means that the European debts are essentially unpayable. Without real growth they are bound to become even more so with every passing year, concentrating resources ever more in the hands of an ever smaller number of people. And of course, this will even worsen when oil production ceases to stagnate and begins to decline.

At some point somebody will have to emulate Valdemar IV, default on his debt or leave the Euro to inflate his way out of it. Bankers and traders won’t be amused but will quickly learn that money doesn’t command loyalty. Those who won’t be able to run will then have an interesting discussion with a court... or a lynch mob.

The problem is that the European administration cannot take this decision. It is not a political body, it cannot change its policies, and those are liberal in nature. The first rule of a free market is that debts must be paid, no mater the costs and the consequences, and it is a rule it cannot break.

Nations states will have to do it, therefore, either together in some grand conference, or more probably alone, after the crisis has put some radical into power. When this will happen, the European Union will simply vanish as the USSR did after the August Coup and the Belavezha Accords. Those who still nurture the dream of a political Europe, whether it be the Europe of Regions of my own political family or the Europe as civilization of the volkish far right will have to accept, as I did, that Europe has become an hollow shell and that time has run out. It is around nation states, not necessarily the ones we know by the way, that Europe will have to face the long descent, until they too dissolve.

As for the dream of an unified Europe, it will have to wait for new empires to come out of the forests of the coming Dark Age, but, of course, by that time, it will no longer be the Europe we know.

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