What has been increasingly drawing public attention in the past few weeks are the events connected, one way or another, with the fear of the euro downfall due to a likely default in Greece and some other countries of southern Europe and the extraordinary efforts of political leaders to foil this scenario of developments. It is sometimes not so easy to see what exactly is going on, the main tendencies and vectors of development, behind the array of figures, charts, rising and falling indices and ratings, the results of summits and conferences, and the statements of politicians and financiers. Meanwhile, there are some warnings that we may soon witness events of such an extraordinary nature that, compared to them, the sovereign default of Greece, Portugal or even Italy, and, hence, the collapse of the euro zone, may just seem a technical prelude to much more important changes. The evidence of this is so far fragmentary and the outlines of these changes are barely discernible through the mist of daily events that are drawing the attention of almost the entire world. Yet one should not underestimate their seriousness.
On September 7 the Constitutional Court of Germany ruled that issuing loans to Greece at Germany’s fe-deral budget expense does not contradict the constitution and thus confirmed the legality of a European bailout fund for powerful financial injections into the economy of the euro zone’s problem countries. Speaking at the Bundestag after the court ruling, Chancellor Angela Merkel especially emphasized the necessity to boost European integration and support the single European currency. She stressed that Germany would be defending the latter at any cost because it is a factor that cements integration. The chancellor also underlined that the German government regards the euro as the firm guarantee of a united, stable, democratic, and prosperous Europe.
But this thesis arouses more and more serious doubts not only because it looks too academic. The impression is that, in reality, the train of 17 euro zone countries, with Germany and France as locomotives, is picking up speed and approaching a dangerous and difficult-to-negotiate bend. Following Winston Churchill’s advice that when your argument is weak you should raise your voice, Merkel and Nicolas Sarkozy are more and more resolutely insisting in their public speeches that there is no alternative to the policy of protecting the euro zone. However, the higher the pitch of the statements and the more resolute the intentions sound, the fewer doubts remain that the situation is in fact hopeless. Back in August at the urgent summit in Paris, the German chancellor and the French president offered the “united Europe” a package of rescue measures. It boils down to increasing fiscal pressure on the financial organizations, further bureaucratizing economic processes and relations, adding something like a single European economic government to the existing European bureaucratic machine, and, finally, introducing mandatory restrictions on the upper limit of public debt into the constitutions of euro zone countries. Being aware that these measures closely resemble an attempt to patch up tattered clothes with a half-rotten thread, stock exchanges immediately responded to this offer by a new fluctuation of indices.
It is impossible to understand what is happening with the euro if one only uses the current economic indications without taking into account the original purposes of the euro and the reference frame within which the currency was established. Back in 1975 the then influential Tripartite Commission, which included representatives of the US, West European, and Japanese academic and political elite linked to the largest multinational corporations (MNCs), published a fundamental analytical review, The Crisis of Democracy. It reflected the alarms and doubts of political leaders, as well as the owners of and investors in those MNCs. The basic thesis of this document was the obvious discontent of these three centers’ corporate and political elite with serious flaws in the macroeconomic and macrosocial models of Western society. The document named the unreasonably wide redistribution of the public good from the private into the public sector and from the sphere of production into that of consumption. The lion’s share of the blame for this situation was put on the welfare state which actively and almost always destructively interfered into the market economy, hampering it with endless bureaucratic rules and regulations; invested unjustifiably big money in the social sphere, thus provoking inflation; in fact helped a wide range of civic organizations to actively intervene in business matters; and, finally, handled too liberally the private property of individuals and companies, which did not belong to it. This negative impact of the state on the economy resulted in the shortage, insufficient mobility and freedom of capitals, and tended to undermine Western economies.
These “warps and excesses of democracy” touched off a neoconservative wave in the US in the late 1970s, on which the Republican Party’s ultraconservative wing came to power for as long as 12 years. This produced such a powerful overall socioeconomic and political effect that the prominent French economist and political journalist Michel Albert noted in his best-selling book Capitalism against Capitalism that a new, independent, model of market relations had been formed. Its supporting structures were freedom of capital, as much free as possible from state interference; emphasis on economic freedom and self-sufficiency of the individual; the supremacy of the idea of individual success and enrichment; the high independent value of money; and equally high social mobility and dynamism. It is at that period that some leading US business publications carried streaming headlines, such as “If the government is among your friends what other foes do you need?”
But the countries of continental Europe, which later formed the basis of the euro zone, did not go this way, which resulted in a fierce, albeit hidden, and still continuing struggle of the neo-American and Rhine models, the latter being represented, in Albert’s view, by, above all, Germany and France. This model is based on recognition of the paternalistic role of the state which positions itself as the biggest social investor and an all-embracing regulator, on essential reduction of the role and economic freedom of the individual, and on unprecedented interference into the individual’s private life. This face-off of the two models in fact forms the underlying, albeit not declared openly, essence of relations between the US and the euro zone states. To survive in the face-off, the Berlin-Paris tandem issued a challenge to the US in the shape of a single European currency which was supposed to become the world’s second reserve currency in addition to the dollar. But it failed to do so. There are many causes of this, including the sociopolitical problems of Western Europe, very different levels and speeds of economic development of the euro zone countries, and the objective difficulty for all the 17 states to pursue the same budgetary, social and fiscal policy. Hence are pessimistic forecasts about the euro’s further existence.
The ever-increasing number of key experts is clearly saying that the crux of the problem is not to save Greece from default but to assuage as much as possible the consequences of the latter. Germany and France are still trying to forestall this scenario of developments, but the resources for doing that are running short with every passing day. The two largest economies of the euro zone do not possess a sufficient economic capacity to bail out Greece, much less the other problem countries of southern Europe.
The economic situation in Germany and France is not exactly top notch. Germany barely managed to be among the world’s top ten most competitive economies in the September survey of the World Economic Forum, while a similar May rating of the Swiss Institute of Management and Development placed only Germany, out of 17 major euro zone states, on the top ten list, with France sliding to a humiliating 29th place. Both Merkel and Sarkozy are forced to maneuver, as they are pressed for time by the upcoming elections. It is not only the Social Democrats who are throwing a challenge to Chancellor Merkel. Her fellow party member and Labor Minister, Ursula von der Leyen, demanded that debtor countries offer Germany more reliable guarantees and allow it access to their gold reserves and industrial facilities as payment for loans, which triggered an extremely irritated reaction of Merkel. Speaking to Nobel laureates in economics later last August, German Federal President Christian Wulff leveled scathing criticism at the European Central Bank and the governments of Germany and France for their policies to bail out Greece. But what caused by far the greatest stir was a recent interview of Helmut Kohl, a patriarch of global and European politics, with the Berlin magazine Internazionale Politik, in which Merkel’s political father holds the chancellor responsible for the fact that German politics has lost its face and bearings, is no longer easy-to-grasp and predictable, and Germany itself is rapidly losing the reputation of a reliable partner and ally – above all, in the eyes of the US.
It should be noted that the entrepreneurial elite of Western Europe in general and of Germany and France in particular are much weaker politically than their US counterparts. In the face of new challenges from China and some other Asian countries, European capital is seeking an adequate response. One of the options is to borrow a great deal of the 1980s US experience. But, for this U-turn to be made, neither the rescue of southern European states from default, nor the salvation of the single European currency, nor the continuation of building something like the United States of Europe, are no longer top-priority objectives. The political justification of this U-turn comes across many serious problems in Europe, one of them being the factual absence of strong conservative parties. But this problem is resolvable. This segment is being increasingly filled with what is known as ultraconservatives who are winning more and more votes in France, Germany, the Netherlands, Belgium, Austria, and some other countries of Europe. Suffice it to recall the recent statement of France’s National Front leader, Marine Le Pen, that, if she is elected president, her first decree will be to abandon the euro which is hindering the further development of France.
The impression is that the single European currency will not be overtly abandoned in the short term. Yes, the European train is running slowly, problems are coming up every day and they are hard to solve. But the above-mentioned Rhine model, which showed its limitations and hampers the development of Europe, may well be replaced with the neo-American one some modernization and adjustment to the Old World’s conditions. It will be rather difficult to do so, also for psychological reasons. In a crisis, European politicians try to apply methods of the Left: they raise taxes and increase state regulation. It is, of course, necessary to cut the bloated public spending and social benefits, but it is not enough. Economic freedom alone can deliver the goods. Should the neo-American model be adopted, the single currency will be able, under certain conditions, to play an important role in stabilizing the situation and then riding out the crisis.
Europe is going through hard times. The welfare state model in its present-day shape is outdated and needs to be essentially modified, if not replaced altogether. Changes may occur in the nearest future. Ukraine, too, should be prepared for this. We want to be part of Europe, but the latter is different now, and Kyiv will have to carefully weigh all the pros and cons of this path. A different Europe will wish to see a different Ukraine in its ranks.
