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Dangerously ignorant – What Germany and Europe should learn from Roosevelt

The current protraction of reforms of the financial system as well as of governance in Europe leads only to ongoing socialization of the costs of crisis. The rational consequence rather needs to be a readjustment of economic power towards a fair distribution of produced wealth.
Lutz Paessens
27 July 2011

When comparing the economic breakdown of 2007 with the Great Crash of 1929 it is hard to deny that the global management of the immediate crisis has been much more efficient in 2007. After the crash of 1929 almost all national economies slid into severe depression with devastating consequences for average citizens. In 2007, however, such a scenario was largely averted by the successful implementation of enormous financial stabilization measures. Ignominiously, the second step, curing the underlying causes of the breakdown of the financial system has not been undertaken so far. Instead the fundamental problems are still being deferred to the future.

Paradoxically, one reason for this failure is the very success of the rapid stabilization measures itself. The general populace in most countries has not felt the extent of the crisis as severely as the depression after 1929. In many richer European countries this quickly led to a feeling of “business as usual”. In addition, the benign coincidence that the newly-industrialized countries such as China, India and Brazil maintained a strong global demand allowed export-oriented industrialized countries such as Germany to survive without implementing reforms of their economies i.e. by creating demand at home and by pushing for economic and political reform in Europe.

In the U.S. the depression that followed the Great Crash of 1929 led to the understanding that profound socioeconomic change had to occur in order to prevent - as president Roosevelt put it - “the return of conditions, which came very close to destroying what we call modern civilization”, a premonition that pretty accurately describes the dreadful change of conditions in Germany after 1929. This difficult realization by the American people resulted in the election of Franklin D. Roosevelt as president in 1932 and implementation of his “New Deal”. The New Deal policies laid the foundation for the economic regeneration of the U.S. with the goal of re-establishing economic stability throughout the American society.

Against this background it is distressing to witness that both in Europe and the U.S. the very shaky stabilization of the global economy is currently not being used as a window of opportunity to tackle the underlying causes of the crisis, but to consolidate the economic status quo. In this context the ludicrous logic of the German Chancellor Angela Merkel's statement that “the crisis is overcome if we are where we were before the crisis” is an example of a dangerously pervasive ignorance. The aim of most current political and economic power brokers appears to be to defend the pre-crisis power and income allocation. However, following such a drastic economic crisis it is not sufficient to restrict legislative action only to protect the “elite” 5-10 percent of the population. The rational consequence of the crisis rather needs to be a readjustment of economic power towards a fair distribution of produced wealth; a requirement that is underlined by economic rationality since new demand can only be generated if the people have money to spend. The current protraction of required reforms of the financial system as well as of governance in Europe leads only to repeated bailout packages and hence ongoing socialization of the costs of crisis.

The last milestone of this development is the economic and social crisis of southern Europe. Particularly with regard to the socio-economic problems faced by Greece it is again worthwhile to draw a historic comparison. In Germany the depression that followed the Great Crash of 1929 was aggravated by the fiscal policies of Reichskanzler Brüning who reduced government spending, raised taxes and cut the wages of public servants. In view of the developments that followed it is appalling that this kind of strategy is currently being repeated in Greece, but also in Spain and Portugal. European unity is being risked in order to protect the particular interests of the banking sector, which bears primary responsibility for the crisis.

Even worse, in order to distract from urgently required reforms to European governance and economic policy Angela Merkel appears to be irresponsibly channeling the frustrations of large segments of the German population over the unresolved causes of the financial crisis into the inadequacies of Greek fiscal management, and the European South in general, by making use of the tabloid press. Merkel’s comments on the lax Greek work ethic in turn provoked Greek tabloids to stir up anti-German resentments. This strategy has already severely harmed European collaboration in dealing with the current fiscal crisis, but for Merkel it appears to produce the desired effect of misleading the population and ensuring that leaders from the economy, banks and government can sort out any solutions among themselves. However, in order to conclusively solve the economic problems of Europe it rather takes Einstein’s insight that “No problem can be solved from the same level of consciousness that created it.”

In contrast to Germany and Europe today, Roosevelt courageously acted in line with this perception. He realized that cooperation is not only more human, but also more successful than competition:

Competition has been shown to be useful up to a certain point and no further, but cooperation, which is the thing we must strive for today, begins where competition leaves off.

History has proved him right.

Today it is necessary to strive for a similar paradigm shift. In order to truly fix the prevailing crisis and its underlying causes it is necessary to restore confidence by correcting the failures of the markets, by holding the persons and institutions responsible for these failures to account and by supporting the power of collaboration by setting goals at the level of the society as a whole.

Among the many challenges that lie ahead of us in Europe the conservation of the cultural and economic progress of European integration and the termination of the ruinous pace of the destruction of natural resources must have the highest priority. This requires economic programs in the area of energy production and distribution, energy saving and efficiency, transport, traffic and production. Beyond this improvements in the general education systems and the support of regional economies and living spaces are necessary.

Such an economic policy would considerably contribute to local immobilization of capital and would counteract the extreme volatility of the markets. This way it would be possible to win back the stability and reliability that was lost due to irresponsible tax-cuts and naïve faith in self-regulation of the markets in past years. Instead of consumerism, such efforts would strengthen the pillars of our societies and create the confidence required for managing the challenges that need to be tackled.

This does not only protect the environment but also the cultural identity and diversity – the germ cells of individual happiness – and above all Europe’s greatest wealth.

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