Last week, I wrote about the crisis of Islamic radicalism and the problem of European nationalism. This week’s events give me the opportunity to address the question of European nationalism again, this time from the standpoint of the European Union and the European Central Bank, using a term that only an economist could invent: “quantitative easing.”
European media has been flooded for the past week with leaks about the European Central Bank’s forthcoming plan to stimulate the faltering European economy by implementing quantitative easing. First carried by Der Spiegel and then picked up by other media, the story has not been denied by anyone at the bank nor any senior European official. We can therefore call this an official leak, because it lets everyone know what is coming before an official announcement is made later in the week.
The plan is an attempt to spur economic activity in Europe by increasing the amount of money available. It calls for governments to increase their borrowing for various projects designed to increase growth and decrease unemployment. Rather than selling the bonds on the open market, a move that would trigger a rise in interest rates, the bonds are sold to the central banks of eurozone member states, which have the ability to print new money. The money is then sent to the treasury. With more money flowing through the system, recessions driven by a lack of capital are relieved. This is why the measure is called quantitative easing.
The United States did this in 2008. In addition to government debt, the Federal Reserve also bought corporate debt. The hyperinflation that some had feared would result from the move never materialized, and the U.S. economy hit a 5 percent growth rate in the third quarter of last year. The Europeans chose not to pursue this route, and as a result, the European economy is, at best, languishing. Now the Europeans will begin such a program — several years after the Americans did — in the hopes of moving things forward again.
The European strategy is vitally different, however. The Federal Reserve printed the money and bought the cash. The European Central Bank will also print the money, but each eurozone country’s individual national bank will do the purchasing, and each will be allowed only to buy the debt of its own government. The reason for this decision reveals much about Europe’s real crisis, which is not so much economic (although it is certainly economic) as it is political and social — and ultimately cultural and moral.
The recent leaks have made it clear the European Central Bank is implementing quantitative easing in this way because many eurozone governments are unable to pay their sovereign debt. European countries do not want to cover each other’s shortfalls, either directly or by exposing the central bank to losses, a move that would make all members liable. In particular, Berlin does not want to be in a position where a series of defaults could cripple Europe as a whole and therefore cripple Germany. This is why the country has resisted quantitative easing, even in the face of depressions in Southern Europe, recessions elsewhere and contractions in demand for German products that have driven German economic growth downward. Berlin preferred those outcomes to the risk of becoming liable for the defaults of other countries.
The major negotiation over this shift took place between European Central Bank head Mario Draghi and German Chancellor Angela Merkel. Draghi realized that if quantitative easing was not done, Europe’s economy could crumble. While Merkel is responsible for the fate of Germany, not Europe, she also needs a viable free trade zone in Europe because Germany exports more than 50 percent of its gross domestic product. The country cannot stand to lose free access to Europe’s markets because of plunging demand, but it will not underwrite Europe’s debt. The two leaders compromised by agreeing to have the central bank print the money and give it to the national banks on a formula that has yet to be determined — and then it is every man for himself.
The European Central Bank is providing the mechanism for stimulating Europe’s economy, while the eurozone member states will assume the responsibility for stimulating it — and living with the consequences of failure. It is as if the Federal Reserve were to print money and give some to each state so that New York could buy its own debt and not become exposed to California’s casual ways. The strangeness of the plan rests in the strangeness of the European experiment. California and New York share a common fate as part of the United States. While Germany and Greece are both part of the European Union, they do not and will not share a common fate. If they do not share a common fate, then what exactly is the purpose of the European Union? It was never supposed to be about “the pursuit of happiness,” but instead about “peace and prosperity.” The promise is the not right to pursue, but the right to have. That is a huge difference.
The anthem of the European Union is from Beethoven’s 9th Symphony, which contains these lines from the German poet Friedrich Schiller:
Joy, beautiful sparkle of the gods,
Daughter of Elysium,
We enter, fire-drunk,
Heavenly one, your shrine.
Your magic binds again
What custom has strictly parted.
All men become brothers
Where your tender wing lingers.
I wrote in my new book, Flashpoint: The Coming Crisis in Europe, that Europe is about:
“…the joy of joining men into a single brotherhood, overcoming the divisions of mere custom. Then there would be joy. Brotherhood means shared fate. If all that binds you is peace and prosperity, then that must never depart. If some become poor and others rich, if some go to war and others don’t, then where is the shared fate?”
A Crisis of Brotherhood
Europe’s crisis is not ultimately an economic one. Everyone — families and nations — has economic problems. The crisis is not war, which tragically is as common as poverty. Europe’s problem is that it promised a joy beyond custom, a joy yielding brotherhood and abolishing war, and a promise based on prosperity, which is a promise so vast it is beyond anyone’s hope to make perpetual. Neither perpetual peace nor perpetual prosperity can be guaranteed, therefore the joy that would overcome custom and bind men in brotherhood is a base of sand.
In the European Central Bank’s compromise with Germany, we can see not only the base of sand dissolving but also the brotherhood of Europe falling apart. At the heart of this promise is the idea that Germany will not share the fate of Greece, nor France the fate of Italy. In the end, these are different nations. Their customs can be overcome by the joy uniting them in brotherhood, but absent that joy, absent peace and prosperity, there is nothing binding them together.
The test of the American Republic came when the idea that all men are created equal and endowed by their creator with certain inalienable rights was juxtaposed with the brutishness of slavery. Prior to the revolution, these United States were divided into sovereignties so profound that many states saw themselves as individual nations not bound by the promises of the Declaration of Independence. They believed themselves free to withdraw from the federation if displeased by others’ moral interpretations of the Declaration. What ensued was the Civil War, which was fought, as Abraham Lincoln put it, to test whether a nation so constituted could long endure.
That is precisely the question of the European Union. Can an entity, founded on nations of wildly different customs, expectations and economies long endure and share a common fate? In the dry technicalities of quantitative easing, Europe has defined its limits of brotherhood. One of those limits is prosperity. Each nation determines how it will plot its own course, its money distributed by the European Central Bank, but under the rules of the individual states and without any nation being compelled to share the fate of another. The euro is a common currency that has no one’s picture on the front because the histories of eurozone countries are so divided that there are no common heroes. The United States knows that Washington, Lincoln, Hamilton, Jackson, Grant and Franklin are our common heritage. There is no such commonality in Europe, and, therefore, no transcendence of the customs of nations.
The strategy proposed for quantitative easing is a great compromise, and it may solve the economic problem. But at its first test, hardly on the order of slavery and the American Civil War, Europe has failed a more profound test: brotherhood, which is men bound together by a joy-transcending culture.
Some will say that I am making too much over a useful political compromise — that the basic institutions of Europe remain, and we therefore have a useful solution to the problem. I think this argument misses the deeper point. Europe never expected to face this crisis because it thought peace and prosperity would endure. It has not because it could not. Quantitative easing is not merely the desire to avoid responsibility for prosperity. There is no unity in Europe over the fears of Romania or Russia about Ukraine. There is no real unity over how to face terrorism in the name of Islam. There is simply no unity.
If Europe can parse the common search for prosperity in this way and calmly consider the secession of one of the brotherhood, Greece, over malfeasance far from terrible on the order of human things, then what is to keep any of the Europe’s institutions intact? If you can secede or be expelled from the eurozone, and if you might choose to close your border to Slovaks seeking jobs in Denmark, then perhaps you can choose to close your borders to German products. And if that is possible, then what is the fate of Germany, which relies on its ability to sell its goods anywhere in Europe? After all, it is not only the poor and weak in Europe whose fates are at risk.
In the end, Europe becomes not so much a moral project as it does a convenience, a treaty, which is something a country can leave at will if it is in its interest to do so. When the South seceded from the United States, Northern men were prepared to die to preserve the Union. Is there anyone who would give his life to preserve the European Union, block secession and demand a permanent, shared fate?
I predicted that a decisive moment would arrive in Europe, but the speed at which it did surprised me. I expect that its institutions will survive a while, and I expect that most people will think I am overreacting. That’s possible, but I don’t think so. Regardless of the technical and political purpose behind the decision to implement quantitative easing, and however defensible it is on its own grounds, the moral lesson is that Europe ultimately is a continent, not an idea.
Last week, the question was why Europe found it so difficult to assimilate immigrants and why it resorted to multiculturalism. The answer was that the customs of the nation-state made it impossible to imagine someone born outside the customs of the nation-state to truly become part of its brotherhood. This week, the question is why the European Central Bank cannot distribute the money it prints but will give it to national banks to manage. The answer is that no country wants to be responsible for the debts of anyone else in Europe. That is not a foolish position, but it makes a union impossible, certainly not one that can overcome custom.
In Flashpoints, I wrote the following:
“We are now living through Europe’s test. As all human institutions do, the European Union is going through a time of intense problems, mostly economic for the moment. The European Union was founded for “peace and prosperity.” If prosperity disappears, or disappears in some nations, what happens to peace?…That is what this book is about. It is partly about the sense of European exceptionalism, the idea that they have solved the problems of peace and prosperity that the rest of the world has not.”
But if Europe is not exceptional and is in trouble, what comes next? The history of Europe should give us no comfort.