The First World War, the Great Depression, the collapse of most European democracies, the Second World War: a continent in ruins and—with the Cold War—a divided continent at that.  What to do?  One answer came in a movement toward Western European unity.[1]  In 1949 came the European Coal and Steel Community (France, West Germany, Italy, the Benelux countries); in 1957 came the European Economic Community (same countries with a common external tariff, but no tariffs within the EEC); in the 1970s and 1980s came new members (Britain for example); in 1992 came the Maastricht Treaty that committed the members to ride the process as far as they could go; and the collapse of the Soviet Union’s empire in Eastern Europe.  The European Union (EU), as it is now called, started out with 6 member countries; now it has 28 members.  It also added various institutions of government.  These included a European Commission representing the member countries, a European Parliament, a Council of Ministers, a European Court to settle conflicts between national laws and EU laws, a President and a Foreign Minister, and a kinda-sorta common currency called the “Euro.”

Did it work?  Yes it did.  First, no wars have been fought between member states since 1945.[2]  Second, incomes have risen for ordinary Europeans: a recent estimate reported that the per-family income effect over just ten years has been a $6,000 increase.

So, people are in love with the European Union, right?  Well, no.  No?  Well, why not?

First, because the French used to count for a lot more than they do today,[3] so they had a large voice in designing the institutions.  These institutions bear a certain resemblance to the constitution of the first French Empire created by the military dictator Napoleon I.  The European Commission, with one appointed representative for each country, writes legislation.  The Commission then sends the proposed legislation to the popularly elected European Parliament. The Parliament can amend legislation or it can approve it or it can reject it, but it cannot initiate any legislation.  Legislation approved by the Parliament must then be ratified by the Council of Ministers, which is made up of more appointed representatives of the member states.  So, elected governments take forever bargaining with one another to achieve a moderately acceptable outcome.

Second, the EU’s government often fails to take action, but the “Eurocrats” issue regulations all the time.  Hundreds of thousands of them.  The regulations create common standards across all member states.  The European Court regularly decides that these regulations are superior to the laws of any protesting country.  To take one really absurd example, EU regulations banned bananas with “abnormal curvature.”

Third, because the Europeans have never settled the conflict over who they want to be.  On the one hand, many people see themselves as “Europeans-all-in-this-together.”  On the other hand, many people see themselves as, for example, “British-first-and-Europeans-second.”  The EU created a community where goods and services, but also people and money, moved around inside the community without any national boundaries.  Citizens of EU countries don’t need a passport to travel anywhere or work anywhere inside the EU.  Younger people often like this, but it freaks-out older people who still feel patriotism.

[1] “The endangered European Union,” The Week, 19-26 August 2016, p. 11.

[2] OK, you wouldn’t want to try to jump ship on the French Empire, but otherwise..

[3] Back in the day, the West Germans felt bad—or pretended to—about the whole unfortunate Nazi thing.  So, “working their passage” back to international respectability involved the Germans putting up with a lot of guff.  Now, they’re over it.


Coming Soon to a Theater Near You: Grexit Rising:

When it comes to tossing around their weight, it doesn’t matter that each country has a single vote at the U.N. General Assembly. There are a few big, important countries and there are many little, unimportant countries. You can see this at work in the current stand-off over the Greek debt issue.

The I.M.F., although chock-full of technical experts, still has an acute political awareness. So, the I.M.F. has long favored pairing a reduction (“restructuring”) of the debt owed by Greece to its European creditors (especially Germany) with economic reforms by Greece. Greek debt is up to 180 percent of GDP. There is no way the Greeks are going to make the sacrifices necessary to pay the debt, but the European creditors have refused to absorb the losses. The Greeks revolted against both austerity and the reforms pushed by the I.M.F. and the European Union. Now there is a dead-lock. However, in public the I.M.F. has laid the blame for the impasse at the feet of the Greek government. Complaints about the intransigence of the creditors were uttered sotto voce.[1] That reflects the importance of Germany and France on the world scene and within the European Union. The harsh stance toward the Greeks also reflects the utter unimportance of their country. Greeks are by nature Hellenophiles, so they have some difficulty registering the reality that no one else cares what happens to Greece.

Before joining the Eurozone, the Greeks could have dealt with their debt problem (and did) by devaluing their currency. Effectively, this robbed their creditors. Served the creditors right for lending to the Greeks. Financial Darwinism in action. Nobody much cared. Joining the Eurozone, with its single exchange rate, robbed Greece of this option.[2]

In a normal bankruptcy, the creditors would have to eat a lot of their claims on the grounds that they had been foolish to lend the money in the first place. The Greek case is different because the crisis arose when it became apparent that several Greek governments representing different parties had “cooked” the national accounts in order to deceive lenders. So, it seems perfectly reasonable to me that Greece would get its head held under the tap while someone (with a German accent) gave them a good scrub with a steel brush. Still, you can’t get blood out of a stone. Why not say “enough is enough”?

I conjecture that there are several reasons. First, once all is forgiven, and the debt has been written down, and the Greeks have agreed to some cosmetic reforms of unions and pensions, and enough time has passed for people in financial markets to forget about the whole thing[3], the Greeks will do it again. There is no solution to this problem except to boot the Greeks out of the Eurozone. Second, what will be the effect of a Greek default on the creditors? Back in August 2012, it was estimated that the Eurozone Central Banks could lose as much as 100 billion Euros from a Greek default, with the German Central Bank getting soaked for up to 27 billion Euros.[4] I have not seen much discussion of the impact on the creditor economies of a Greek default (but maybe I wasn’t looking). Economically, but even more politically, accepting that the money is gone will be hard for democracies to choke down. Still, push is coming to shove. Either before or after a new “extension,” the Greeks will get shoved out the door.

[1] Liz Alderman and Landon Thomas, Jr., “I.M.F. Recalls Negotiators as Deadline Looms for Greek Deal,” NYT, 12 June 2015.

[2] In exchange, the Greeks gained the transient psychic benefit of believing that they did not live in a banana republic.

[3] In all likelihood a relatively short span of time. Which should make Americans wonder whether anyone learned any lessons from our own “recent unpleasantness.”

[4] See: