End in sight to "Othering the Union". Hope for Europe.

The European debt crisis is political more than financial, as argued by George Soros. But the solution to the political problem needs to confront domestic political elites throughout Europe, jealous of their power, with the dishonesty of their stance. Hold on tight - this process provides hope for genuine democratic transformation throughout the Union

Tony Curzon Price
Tony Curzon Price
18 June 2012

This is the third contribution to our debate on the euro and European democracy

 One of the most unedifying spectacles of the European crisis is the sight of national politicians passing the blame for the dire straits their countries find themselves in up the chain to Europe.

Of course, we're particularly familiar with that in Britain. Douglas Carswell, an MP from the extreme free-market wing of the Tory party, has this one virtue: he persistently calls out the government for blaming Europe when it shouldn't. Here is an example from a recent post of his:

Even more misplaced is the Chancellor's insistence that the Eurozone is to blame for our dire economic performance. Switzerland, which does more than four times more trade with the Eurozone than we manage, is growing. Her economy expanded at a healthy 2 percent year-on-year in the first part of 2012. The idea that it is all the fault of the Eurozone is demonstrably wrong. It is not the Eurozone crisis that we should blame for our awful economic performance, but the almost total absence of domestic economic reform, coupled with the Treasury's absurd belief that monetary stimulus can engineer growth. The longer our economy stagnates, the clearer it becomes that monetary stimulus is no more effective at generating prosperity today than fiscal stimulus was in the 1970s. 

Carswell is right that Britain's recession is not primarily about Europe, but it is a measure of how useful Europe is a scapegoat in domestic politics that politicians unfailingly continue to use the excuse.

Britain is a pathological case of this, but certainly not a unique one. Mark Leonard analyses the huge popularity of Thilo Sarrazin's new book, the euro-sceptic: "Why Europe Doesn't Need the Euro". Remember - Sarrazin was the Bundesbank governor who had to resign in 2010 because of his comments on the failure of Turks in Germany to assimilate. Leonard's argument is that anti-Europe sentiment in Germany is taboo, politically repressed, has therefore has never been argued for in public and is naturally now extremely fragile.

The analysis sounds right but might be taken a step further: it demonstrates the general pattern of behaviour by European domestic political elites - to pragmatically, but not deeply - politically that is - espouse European integration, while making quite sure that the narrative presented to voters is one of national power, control and protection.

Voicing anti-European arguments may well be taboo in Germany, but it is a taboo maintained conveniently in place by the fact that it therefore does not require the political, public elaboration of a pro-European position ... Hey, presto! the message that the domestic sovereign is in charge is maintained.

As the Spanish situation has become critical, there have been intimations of this process at work there. Mariano Rajoy, the Spanish Prime Minister, tried very hard to claim that the bail-out Spain has just signed up to was not actually a bail-out - somehow, we were led to believe, this would not be the Spanish state going cap in hand to the Troika, but rather the banks - who likes them anyway? - having to borrow their way out of trouble. Had this been true, it would indeed have been a real departure from the Greek or Irish bail-outs, because national debt would not have increased by the amount of the bail-out. It is just about possible that this might have allowed Spain - the state, that is - continued access to international borrowing at reasonable rates.

But Rajoy's claim turned out simply not to be true. When investors understood, last Monday morning, that the Spanish state would indeed be ultimately liable for the €100bn, they realised that this made existing Spanish debt more risky and by lunchtime, the interest rates on that debt had risen to all-time highs. Today, it is higher still. Spain has no access to private capital markets.

Maybe Rajoy was right that this is what the Spanish bail-out should have been. Maybe a banking union cobbled together over the week-end is what Europe's next move ought to have been. My point is not to discuss the policy here, but the sovereign nations' political and public attitude towards the EU. It is hard to resist the interpretation of Rajoy's statements in any other way but as the absolute political requirement to misrepresent Spain's relation to Europe to a domestic audience. It certainly wasn't a cunning ploy to calm financial markets. Many commentators resorted to the national stereotype, with Reuters, for example, headlining: "Proud, too-big-to-fail Spain ponders bank rescue". But that is too easy a target - it is not national character, but the natural political stance of almost every EU domestic political elite.

There are early indications of the same strain in Hollande's government in France: the French insistence (contra Merkel) that a banking union should precede a political union is possibly a gambit to avoid the fall-out from the supposed national humiliation that EU-wide control of budgets would imply.

George Soros delivered a speech on economics in general and the Eurozone crisis in particular at the Festival of Economics in Trento 10 days ago, in which he describes the EU's disunion in the terms of his concept of "reflexivity". He warns - a warning that has been picked up by Christine Lagarde at the IMF - that the EU has only 3 months left to solve the Euro crisis.

His analysis is that the European construction has been its own political bubble that can be analysed in the same way as he has so successfully analysed financial bubbles. A partial and flawed model of reality in the hands of the framers of the Maastricht treaty, which envisaged monetary without political union led to action to make that "fantastical object" reality; the crisis has been the process of exposure of the flaws in the original model.

There is much that is right and attractive in this dialectic (which Soros prefers to call "reflexivity"): the confrontation of partial, flawed understandings of the world with its realities is indeed a rich source of complexity and events. And Soros' version of the dialectic is a particularly good model of bubbles in financial markets - his is starkly about understanding (the imperfect maps of reality that agents build); action (the desires, also fantastic, imaginary objects that agents construct), and the (thankfully) recalcitrant reality they are confronted with. This clean dialectic is specially good as an explanation of financial markets because the statements that are made by buy and sell offers on financial products are themselves very clean statements about reality ("I believe this price low, therefore I buy"). It is when those statements are systematically derived from bad models that the financier with a better model can make a killing. I am not sure that exactly this dialectic holds when more is at play - identity, and meaning, in particular, are not often objects of financial markets, and only rarely, and in extreme cases, of financial logic. 

So in the case of Europe's "political bubble", however, I think the analysis of the relationship between ideal and reality needs to be taken a step further. Soros seems to think that this is simply a case of an ideal poorly conceived confronting a recalcitrant reality and setting off on subsequent historical meanderings. But there is more agency here, and it is closely linked with the process I described above by which domestic political classes turn their union into the scapegoat. We might call the syndrome one of "othering the union". (Imagine that as a diagnostic from a marriage guidance counsellor... it would sound pretty bad...)

The painful realisation of the past few years for instinctive Europhiles has been not just the absence of a proper democratic process at a European level; and not just the absence of grass-roots support for Europe amongst us, its citizens.

These, it is quite clear, would have made resolution of the financial crisis much more likely: the debt crisis might have been seen and treated as the set of interlocking European imbalances that indeed it is - balance of payments, competitiveness, creditworthiness and sovereign risk. The sorts of solutions that the US brings to these problems - federal entitlement programs, internal migration, price level differences, stimulus packages, federal banking guarantees - would have been politically available. Instead, every national sovereign has had to be accommodated within the constraints of their own domestic politics. There has been no autonomous agency from the center, as has been so important in resolving the debt crisis in the US.

The more painful realisation has been that this distribution of power between Union and nations is itself the creation of domestic political classes jealous for power they only tenuously, and only thanks to national myth, still hold.

The important variable to add to Soros' dialectic is the question of who is the agent? what is their identity? how is it maintained?. Implicit in his analysis is a fixed set of agents - national elites with imperfect European dreams. But the political process is transformative to the extent that who it is we approach a decision as is not a given - it can be changed. We need to insert the question of why these are the agents of European policy into the analysis. The opportunity has been, throughout 60 years of European construction, to permit the development of the sense of acting as Europeans. That is the idea which would have made the resolution of this crisis more rapid and more likely. Why has it not happened?

Europe has been excluded from the political and democratic table by jealous domestic political classes. Their shrillness today in the face of crisis is entirely understandable as the political panic of a group whom history is about to expose in their dishonesty: the game is up of pretending that power lay with the nation for all the good that came our way, while Europe, whether irritant or taboo, could conveniently be ignored, taken as a given, or even blamed for anything that needed a scapegoat. The game is up not because Europe has won, but because the powerlessness of the nation is being revealed. Watch Rajoy, Hollande, Merkel, Holande, Tsipras and more trip form crisis to crisis as they try to wear the myth of power to the very end.

It was in the short term interests of domestic political elites to suppress any possibility of a working European political identity. It was not just the convenient scapegoat that motivated them, mind you - the key organising principle of the Union, subsidiarity, the notion that every political decision needs to be taken at the greatest possible level of decentralisation compatible with a good decision, is deeply threatening to the old states. Thoroughly applied, subsidiarity would push a few truly large-scale decisions to a federal center - defence, environment, financial regulation, some fiscal redistribution - and would push almost all other politics to a level under the one currently occupied by the constituent states. The real threat of the European idea is that it is a credible and radical counter to the tired power centers of the states. The dynamic of European failure, in other words, has had political sovereigns as its main agents - not just the dialectic of imperfect ideals.

Soros describes the process of financial re-nationalisation that has been going on behind the scenes for the past year. Is this victory for those nations jealous of their power? Of course not: their political elites understand the need for political integration according to a properly applied principle of subsidiarity. They simply hope never to have to admit it to their electorate.

There is a kernel of optimism here - once the lie that European politics has been hooked on for so long is exposed, a space is created for a more honest politics. The crisis is quite ruthlessly exposing the dishonesty of the national sovereigns, and the Zeitgeist of empowerment we feel all around us is one that is intolerant of that thing above all - self-interested obfuscation.

Of course the space created by the uncovering of the dishonesty of jealous power still needs to be occupied. Will Europe's citizens be up to it? If they are, this is bad news for the old political elites and good news for us, citizens of Europe.

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