Friday, June 25, 2010

Europe: A clinical diagnosis

Guy Sorman
End of the European Siesta?
The continent must awaken from its socialist dream, and fast.
25 June 2010
The tragedy of Europe goes far beyond the case of Greece and only appears to be financial. The problem lies deeper: it extends to all member countries, or will eventually. It won’t be enough to put government budgets somewhat in order, to avoid a Greek bankruptcy, or to reassure the creditors of Spain and Portugal. Patching things up financially will not stop a contagion common to all of the European Union’s member countries, since all suffer from the same illness, though many would like to minimize its seriousness. The IMF, the Central European Bank, and the ministries all tell us: this is a financial and technical problem. We know how to proceed; this trouble will pass. We’ll provide a few loans and persuade the Germans to bring down government spending a bit. And then everything will be as before.
What a denial of reality. The truth is that the foundations of the European Union are incompatible with the way European states govern themselves. Let’s be clear: the European Union is based on a free market. It was so conceived in political philosophy and in economics, and the only possible way to govern it is in accordance with such economic freedom. Yet all the national governments, even those of the right, have in fact created gigantic welfare states inspired by socialist ideology.
The fact is that, at the origins of Europe, Jean Monnet, a Cognac entrepreneur with strong American connections, concluded that European governments had never succeeded and would never succeed in making Europe a zone of peace and prosperity. He thus replaced the diplomatic engine with an economic engine: free trade and the spirit of enterprise, he envisioned, would generate “concrete areas of solidarity” that would eliminate war and poverty. Three EU founders, all Christian democrats—Konrad Adenauer, Alcide De Gasperi, and Robert Schuman—ratified Monnet’s free-market intuition. These men shared a common moral and political understanding and a common economic analysis. All were suspicious of the statism then identified, for good historical reasons, with totalitarianism. The Commission of Brussels, and later the Central European Bank, were determined to keep faith with this original spirit of freedom in opposition to constant pressure from national governments to “socialize” Europe. The principle of free trade, which the Commission of Brussels constantly reinforced, roused Europe’s spirit of enterprise against various attempts at protectionism and national monopoly. (Often perceived in the U.S. as just another European super-bureaucracy, the Commission has been a consistent force for deregulation and competition.) The euro, moreover, was created to force states to balance their budgets, just as free-market monetary theory prescribed.
Unfortunately, the national governments thought it possible to reap the economic benefits of a free Europe and the electoral delights of socialism. By “socialism,” I mean the unlimited growth of the welfare state—the accumulation of entitlements and jobs protected by the state. This de facto socialism, this sedimentation of electoral promises and acquired rights, grew in Europe at a much faster rate than did the economy or the population. It could thus only be financed by loans, which seemed risk-free, since the euro appeared “strong.” The euro’s strength drove its holders into a frenzy: suddenly, anything could be bought on credit. The result was a remarkably homogeneous indebtedness in all the countries of Europe, on the order of 100 percent of national wealth—ranging between Germany’s 91 percent and the Greeks’ 133 percent (a relatively modest difference), all reflecting a common socialist drift. Germany, Greece, Spain, and France differ less in their levels of debt or modes of administration, which are in fact quite similar, than in their debtors’ capacities to repay. All European states are run socialist-style, in contradiction with the European Union’s free-market principles. Some will be more able than others to deal with defaults, but all have drifted off course.
How shall we explain this fatal drift? The true cause lies in ideology. Socialism dominates minds across Europe, whereas liberalism—which has retained its original free-market meaning in Europe—is under attack in the academy, in the media, and among intellectuals generally. In Europe, to support the market against the state, to recommend modesty on the part of the state, is taken for an “American” perversion. And socialist ideology is sufficiently engrained that it’s almost impossible for a non-suicidal politician to win election without promising still more public “solidarity” and still less individual risk. These welfare states, through their financial cost and the erosion of ethical responsibility that they foster, have smothered economic growth in Europe. We are the continent of decline, albeit decline with solidarity.
And now Greece’s bill has come due. It won’t be the last of its kind. What is to be done? We might perfectly well refuse to pay it—after all, why should French or German taxpayers of modest means pay taxes evaded by rich Greeks to finance Greek unions and the Greek military? But European finances are deeply interwoven: in reality, the euro owed by a Greek sits in a German or French bank. Whether or not non-Greeks rush to Greece’s aid would therefore change nothing; Europe’s failure will be collective. We thought we were citizens of independent nations, but we are instead a continent’s debtors. If Europeans don’t settle the Greek bill, then those of Portugal, Spain, and Italy will come due in quick succession, since a Greek bankruptcy would impact the euro’s value across the continent.
How can we escape such a tragedy? By buying time, by denying reality, by committing suicide—or by telling the truth. At this historic threshold, it’s hard to tell which of these scenarios will prevail. At the origins of Europe, Jean Monnet told the truth, and statesmen explained it to the various peoples of Europe. Today, it is not the Greek crisis that needs explaining, but the path that led to it. The long-term imperative is not the absorption of Greek or Spanish debt, but putting an end to the European strategy of decline. All things considered, we should thank the Greeks for waking us, however inadvertently, from our European siesta.
Guy Sorman, a City Journal contributing editor, is the author of Economics Does Not Lie and other books.

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