Mind games
Culture clash tearing at heart of EU
‘There is no desire to go backwards and no interest in going forward, but it is unsustainable to stand still’
Very few arguments are only about the subject ostensibly under discussion. The volcanic bust-up between Greece and its creditors was, of course, principally about the terms of the country’s various bail-outs. But it was also a particularly dramatic venting of the tectonic tensions at the very heart of the European project.
Throughout the bickering, politicians of every stripe exhorted each other to be “good Europeans”, a deceptively bland phrase with a long and complicated history. Trying to untangle its nuanced meaning takes us beneath the surface of the Greek crisis and to the vast contradictions that threaten to tear Europe apart. David Krell chose The Good European as the title of his book about Friedrich Nietzsche, who first coined the phrase. Despite being posthumously embraced by some particularly malevolent Europeans, the 19th century German philosopher was, according to Krell, “a fierce critic of nationalism, imperialism and militarism” who was concerned that the old ideas of nations and fatherlands might obstruct “the historic process of European unification”.
This process was somewhat curtailed by some of Nietzsche’s most misguided fans in the second quarter of the 20th century, a period which provided stark lessons about unchecked markets (which contributed to the Wall Street Crash of 1929 and the Great Depression that followed it) and excessive state power.
Germany’s reaction to the turmoil was twofold – a heightened belief in the importance of European integration and the birth of a new economic orthodoxy called ordoliberalism.
This little-understood philosophy is often portrayed by critics of Germany as a kind of unbending dogma. Yanis Varoufakis, Greece’s mayfly finance minister, was having a dig at his German counterpart Wolfgang Schaeuble in particular and ordoliberalism in general when he said: “To him, the rules are God-given.”
But, at its root, ordoliberalism is simply a belief in shielding monetary stability and a balanced budget from political pressure; it reached its apogee in 1957 when the Bundesbank was made independent, a move that many other counties, including the UK, have belatedly copied.
Ludwig Erhard, West Germany’s first finance minister, who helped fashion the country’s post-war Wirtschaftswunder, and popularise ordoliberalism, described the role of the state as like that of a football referee who ensures that a clearly defined and constant set of rules are adhered to without personally getting involved in the game.
Alexis Tsipras argued that the January election and the July referendum demonstrated that Greece had rejected the terms of the country’s bail-outs. To ordoliberals, the Greek prime minister was campaigning on a promise to rewrite the offside rule.
There are, however, important counterpoints to the ordoliberal world view. The German economy is often held up as an example to be followed – Yvette Cooper, one of the Labour party leadership hopefuls, did just that earlier this month. But there’s as much to be concerned about as admired.
Germany has a balanced budget but is suffering from chronic underinvestment. Its unemployment rate is half the European average but this masks poor productivity and stagnant wages. It boasts a quarter of all the continent’s exports but has been lucky to produce exactly the products that China has most needed through its most pyrotechnical period of growth. This is now at risk, given that China’s economy is slowing and the balance of its consumption is shifting from goods to services.
Germany also has a long history of bending the rules if needs must. The costs from the country’s reunification prevented anything close to a balanced budget right through the 1990s. Despite (or perhaps because of) this flexibility, ordoliberalism became one of the cornerstones of the European Union. Mario Draghi, the president of the European Central Bank, says: “It is worth recalling that the monetary constitution of the ECB is firmly grounded in the principles of ordoliberalism.”
Jens Weidmann, the president of the Bundesbank, said: “The entire Maastricht framework reflects key ordoliberal and social market economy principles”. The Lisbon Treaty’s call for the “sustainable development of Europe based on balanced economic growth and price stability” could have been penned by Erhard himself.
He would, however, have despaired of how it has been implemented. In repeated speeches Erhard called for decentralisation, open markets and competition. Essentially he thought that European integration should encompass as many countries as wanted to be involved, including those of the former Soviet bloc. But he worried that the process would become too bogged down if controlled by bureaucratic supranational institutions.
In the same year that he became German chancellor, Erhard published an article in which he answered Nietzsche’s old question – “Who is a good European?” – by arguing that the continent’s citizens could achieve shared prosperity through common agreements that promoted free trade without being bound by supranational institutions. He worried that, if the parameters of integration were too rigid, they could end up driving diverse countries apart rather than uniting them. It is probably fair to say Erhard would not have been a fan of the Common Agricultural Policy.
Essentially his view of European integration was that it should be wide and thin. The French, in contrast, wanted to go narrow and deep. This approach was best exemplified by the European Coal and Steel Community, which comprised just six countries (France, Germany, Italy, Belgium, the Netherlands and Luxembourg) and produced top-down prices and production targets.
The European Economic Community ended up being a compromise between the two competing visions. European integration became what neither side ever envisaged – wide and deep – creating a tension that was exacerbated by the introduction of the euro and remains unresolved.
On Thursday, Benoît Coeuré, an influential member of the executive board of the European Central Bank, attempted to lay out a way forward. He said that Europe must drop “integration by crisis”, its modus operandi since 2010, in favour of building “institutions that will reinforce the cohesion of our economic and political union” like, for example, a eurozone finance ministry.
And, in so doing, Coeuré invoked the European Coal and Steel Community as a model for achieving efficiencies by pooling resources. It is likely that many of the Germans listening, and in particular those who consider themselves ordoliberals, will have inwardly groaned.
Not that Europe enjoys many alternatives. Coeuré identified the problem now facing the cause of European integration by quoting a recent academic paper: “There is no desire to go backward [and] no interest in going forward, but it is economically unsustainable to stay still.” Here, then, is the trilemma facing all “good Europeans”.