Europa la rascruce

Analiza publicata pe blogul stelian-tanase.ro

Stratfor.com: „European Crisis: Precise Solutions in an Imprecise Reality Read more: European Crisis: Precise Solutions in an Imprecise Reality”

Autor: George Friedman

Sursa informationala: Stratfor.com

An important disconnect over the discussion of the future of the European Unionexists, one that divides into three parts. First, there is the question of whether the various plans put forward in Europe plausibly could result in success given the premises they are based on. Second, there is the question of whether the premises are realistic. And third, assuming they are realistic and the plans are in fact implemented, there is the question of whether they can save the European Union as it currently exists.

The plans all are financial solutions to a particular set of financial problems. But regardless of whether they are realistic in addressing the financial problem, the question of whether the financial issue really addresses the fundamental dilemma of Europe — which is political and geopolitical — remains.

STRATFOR has examined the plans for dealing with the financial crisis in Europe, and we find them technically plausible, even if they involve navigating something of a minefield. The eurozone’s bailout fund, the European Financial Stability Facility, would be expanded in scope and reach until it can handle the bailout of a major state, the default of a minor state and a banking crisis of unprecedented proportions. Given assumptions of the magnitude of the problem and assuming general compliance with the plans, there is a chance that the solution we see the Germans moving toward could work.

The extraordinary complexity of the plans being floated in Europe is important to note. It is extremely difficult for us to understand the specifics, and we suspect the politicians proposing it are also less than clear on them. We have found that the more uncertain the solution, the more complex it is. And the complexity of the European situation is less driven by the complexity of the economics than by the complexity of the politics. The problem is relatively easy: Banks and countries under massive financial pressure almost certainly will default without extensive aid. By giving them money, default can be avoided. But the political complexity of giving them money and the opposition by many Europeans on all sides to this solution contributes to the complexity. The greater the complexity, the more interests can be satisfied and — ultimately — the less understanding there is about what has been promised. Some subjects require complexity, and this is one of them. The degree of complexity in this case tells another tale.

The Foundation of the Crisis

Part of that tale is about two dubious assumptions at the foundation of the crisis. The first is the assumption that interested parties are genuinely aware of the size of the financial problems, and to the extent they are aware of it, that they are being honest about it. Ever since 2008, the singular truth of the financial community globally has been that they were either unaware of the extent of the financial problems on the whole or unaware of the realities of their own institutions. An alternative explanation is, of course, willful ignorance. This translates as the leaders being fully aware of the magnitude of the problem but understating it to buy time or to position themselves personally for better outcomes. It could also simply be a case of their being engaged in helpless hopefulness — that is, they knew there was nothing they could do but remained hopeful that someone else would find a solution. In sum, it combined incompetence, willful deception and willful delusion.

Consider the charge that the Greeks falsified financial data. While undoubtedly true, it misses the point. The job of bankers is to analyze data from loan applicants and to uncover falsehoods. The charge against the Greeks can thus be extended to bankers. How could they not have discovered the Greek deception?

There are two answers. The first is that they didn’t want to. The global system of compensation among financial institutions — from home mortgages to the purchase of government bonds — separates the transaction from the outcome. In other words, in many cases bankers are not held responsible for the outcome of the loan and are paid for the acquisition and resale of the loan alone. They are therefore not particularly aggressive in assessing the quality of a given loan. Frequently, they work with borrowers to make their debt look more attractive.

During the U.S. subprime crisis, in the mortgage crisis in Central Europe and in the sovereign debt and banking crisis in Europe, the system placed a premium on transactions, immunizing bankers from the repayment of loans. The validity of the numbers systematically were skewed toward the most favorable case.

More important, such numbers — not only of the status of loans but also about the economic and social status of the debtors — inherently are uncertain. This is crucial because part of the proposed European solution is the imposition of austerity on debtor nation states. The specifics of that austerity and its effect on the ability to repay after austerity heavily depend on the validity of available economic and social statistics.

There is an interesting belief, at least in the advanced industrial countries, that government-issued statistics reflect reality. The idea is that the people who issued these statistics are civil servants, impervious to political pressure and therefore likely providing accurate data. A host of reasons exists for looking at national statistics with a jaundiced eye beyond the risk of politicians pressuring civil servants.

For one, collecting statistics on a society is a daunting task. Even small countries have millions of people. The national statistical database is based on the assumption that all of the transactions and productions of these millions can be measured accurately, or at least measured within some knowable range of error. This is an overwhelming undertaking.

The solution is not the actual counting of transactions — an impossible task — but the creation of statistical models that make assumptions based on various methodologies. There are competing models that provide different outcomes based on sampling procedures or mathematical models. Even without pressure from politicians, civil servants and their academic mentors have personal commitments to certain models.

The center of gravity of our global statistical system, particularly those of advanced industrial countries, is that the selection of statistical models is frequently subject to complex disputes of experts who vehemently disagree with one another. This is also a point where political pressure can be applied. Given the disagreements, the decision on which methodology to use — from sampling to reporting — is subject to political decisions because the experts are divided and as contentious as all human beings are on any subject they care about.

And this is the point at which outside decisions are made, based on outcome, not on the subtleties of mathematical modeling. There is a connection between the numbers and reality, but the mathematics of a bailout rests on a statistical base of sand. It is always assumed that this is the case in the developing world. This creates a certain advantage, in that it is understood that the statistics are unreliable. By contrast, the advanced industrial countries have the hubris to believe that complex mathematics has solved the problem of knowing what hundreds of millions of people in billions of transactions actually have done.

A Culture of Opaque States

Compounding this challenge, the European Union has incorporated societies on its periphery that never have accepted the principle that states must be transparent, a problem exacerbated by EU regulations. Southern and Central Europeans always have been less impressed by the state than Germans, for example. This is not simply about paying taxes but about a broader distrust of government, something deeply embedded in history. Meanwhile, regulations from Brussels, whose tax and employment laws make entrepreneurship and small business ownership extraordinarily difficult, have forced a good deal of the economy “off the books,” aka underground.

While not an EU state, Moldova — said to be the poorest country in Europe — is an instructive example. When I visited it a year ago, the city (and villages outside the city) was filled with banks (from Societe Generale on down) and BMWs. There was clear poverty, but there also was a wealth and vibrancy not captured in intergovernmental statistics. The numbers spoke of grinding poverty; the streets spoke of a more complex reality.

What exactly is the state of the Greek, Spanish or Italian economy? That is hard to say. Official statistics that count the legal economy suffer from methodological uncertainty. Moreover, a good deal of the economy is not included in the numbers. One assessment says that 10 percent of all employees are off the books. Another says 40 percent of Greeks define themselves as self-employed. A third estimates that 40 percent of the total Greek economy is in the grey sector. When evaluating what tries to remain hidden, you’re reduced to guesswork. No one really knows, any more than anyone really knows how many illegal immigrants are participating in the U.S. economy. The difference, however, is that this knowledge is of profound importance to the entire EU bailout.

The level of indebtedness and the ownership of the debt of European banks and countries are as murky as who held asset-backed securities in the United States. Yet there is a precise plan designed to solve a problem that can’t be quantified or allocated. The complexity and precision of the plan fails to recognize the uncertainty because the governments and banks are loath to admit that they just aren’t certain. The banks have grown so big and their relationships so complex that the uncertainty principle parallels the state’s. The United States — where the same governing authority handles all fiscal, monetary and social policies — powered through such uncertainties in the 2008 financial crisis by sheer mass and speed. Europe, with dozens of (often competing) authorities, so far has found it impossible to exercise that option.

The countries that face default and austerity have no better understanding of their own internal reality than the financial institutions understand their own internal reality. Greek numbers on the consequences of austerity for government workers do not take into account that many of those workers show up to work only occasionally while working another job that is not taxed or known to the state statistical services. Thus, one has a complete split between the state and banking systems’ ability to honor debt obligations, the insistence on austerity and the social reality of the country.

Germany has always been different. Ever since the early 19th century German philosopher Georg Hegel declared the German civil service had ended history, the idea of the state as the embodiment of reason has meant something to Germans that it did not mean to others — in both a noble and a horrible sense. We are now at the noble end of the spectrum, but the idea that the state is the embodiment of reason still doesn’t capture the European reality. The Brussels bureaucracy is based on the German view that a disinterested civil servant can produce rational solutions that partisan politicians and self-interested citizens could not.

The founding concept of the European Union involves joining nations that do not share this view, and even find it bizarre, with a nation for which it is the cultural core. This has created the fundamental existential issue in the European Union.

The realization that the rational civil servants of Brussels and Berlin have failed to create systems that understand reality strikes at German self-perceptions. There is a willful urge to retain the perception that they understand what is going on. From the standpoint of Southern and Central Europe, the realization that the Germans genuinely thought that the states on the EU periphery had reached the level of precision of the German civil services (assuming Germany had in fact reached that stage), or that they even wanted to, is a shock. Their publics, which saw the European Union as a means of getting in on German prosperity without undergoing a massive social upheaval putting the state and the civil service — disciplined and rational — at the center of their society, experienced an even greater shock.

The political and geopolitical problem is simply this: Germany is unique in Europe in terms of both size and values. It tried to create a free trade zone based on German values allied with France that looked at the world in a much more complex way. The crisis we are seeing, which Germany is trying to solve with extraordinary complexity and precision, rests on a highly unstable base. First, the European banking system, like the American banking system, does not understand its status. Second, the entire mathematics of national statistics is inherently imprecise. Third, the peripheral countries of the European Union have economies that cannot be measured at all because their informal economies are massive. The fundamental principles and self-conception of Germany and Central Europe diverge massively. The elites of these countries might like to think of themselves as Europeans first — by the German definition — but the publics know they are not, and they don’t want to be.

The precision of the bailout schemes reveals the underlying misunderstanding of reality by Europe’s elites, and specifically by the Germans. To be more precise, this is willful misunderstanding. They all know that their precision rests on a foundation of uncertainty. They are buying time hoping that prosperity will return, mooting all of these problems. But the problem is that a precise solution to a vastly uncertain problem is unlikely to return Europe to its happy past. Reality — or rather the fundamental unreality of Europe — has returned.

In some sense, this is no different from the United States and China. But the United States has its Constitution and the Civil War’s consequences to hold itself together in the face of this problem, and China has the Communist Party’s security apparatus to give it a shot. Europe, by contrast, has nothing to hold it together but the promise of prosperity and the myth of the rational civil servant — the cultural and political side of the underlying geopolitical problem.

Stratfor.com: „The Crisis of Europe and European Nationalism”

Sursa informationala: Stratfor.com

Autor: George Friedman

When I visited Europe in 2008 and before, the idea that Europe was not going to emerge as one united political entity was regarded as heresy by many leaders. The European enterprise was seen as a work in progress moving inevitably toward unification — a group of nations committed to a common fate. What was a core vision in 2008 is now gone. What was inconceivable — the primacy of the traditional nation-state — is now commonly discussed, and steps to devolve Europe in part or in whole (such as ejecting Greece from the eurozone) are being contemplated. This is not a trivial event.

Before 1492, Europe was a backwater of small nationalities struggling over a relatively small piece of cold, rainy land. But one technological change made Europe the center of the international system: deep-water navigation.

The ability to engage in long-range shipping safely allowed businesses on the Continent’s various navigable rivers to interact easily with each other, magnifying the rivers’ capital-generation capacity. Deep-water navigation also allowed many of the European nations to conquer vast extra-European empires. And the close proximity of those nations combined with ever more wealth allowed for technological innovation and advancement at a pace theretofore unheard of anywhere on the planet. As a whole, Europe became very rich, became engaged in very far-flung empire-building that redefined the human condition and became very good at making war. In short order, Europe went from being a cultural and economic backwater to being the engine of the world.

At home, Europe’s growing economic development was exceeded only by the growing ferocity of its conflicts. Abroad, Europe had achieved the ability to apply military force to achieve economic aims — and vice versa. The brutal exploitation of wealth from some places (South America in particular) and the thorough subjugation and imposed trading systems in others (East and South Asia in particular) created the foundation of the modern order. Such alternations of traditional systems increased the wealth of Europe dramatically.

But “engine” does not mean “united,” and Europe’s wealth was not spread evenly. Whichever country was benefitting had a decided advantage in that it had greater resources to devote to military power and could incentivize other countries to ally with it. The result ought to have been that the leading global empire would unite Europe under its flag. It never happened, although it was attempted repeatedly. Europe remained divided and at war with itself at the same time it was dominating and reshaping the world.

The reasons for this paradox are complex. For me, the key has always been the English Channel. Domination of Europe requires a massive land force. Domination of the world requires a navy heavily oriented toward maritime trade. No European power was optimized to cross the channel, defeat England and force it into Europe. The Spanish Armada, the French navy at Trafalgar and the Luftwaffe over Britain all failed to create the conditions for invasion and subjugation. Whatever happened in continental Europe, the English remained an independent force with a powerful navy of its own, able to manipulate the balance of power in Europe to keep European powers focused on each other and not on England (most of the time). And after the defeat of Napoleon, the Royal Navy created the most powerful empire Europe had seen, but it could not, by itself, dominate the Continent. (Other European geographic features obviously make unification of Europe difficult, but all of them have, at one point or another, been overcome. Except for the channel.)

Underlying Tensions

The tensions underlying Europe were bought to a head by German unification in 1871 and the need to accommodate Germany in the European system, of which Germany was both an integral and indigestible part. The result was two catastrophic general wars in Europe that began in 1914 and ended in 1945 with the occupation of Europe by the United States and the Soviet Union and the collapse of the European imperial system. Its economy shattered and its public plunged into a crisis of morale and a lack of confidence in the elites, Europe had neither the interest in nor appetite for empire.

Europe was exhausted not only by war but also by the internal psychosis of two of its major components. Hitler’s Germany and Stalin’s Soviet Union might well have externally behaved according to predictable laws of geopolitics. Internally, these two countries went mad, slaughtering both their own citizens and citizens of countries they occupied for reasons that were barely comprehensible, let alone rationally explicable. From my point of view, the pressure and slaughter inflicted by two world wars on both countries created a collective mental breakdown.

I realize this is a woefully inadequate answer. But consider Europe after World War II. First, it had gone through about 450 years of global adventure and increasingly murderous wars, in the end squandering everything it had won. Internally, Europe watched a country like Germany — in some ways the highest expression of European civilization — plunge to levels of unprecedented barbarism. Finally, Europe saw the United States move from the edges of history to assume the role of an occupying force. The United States became the envy of the Europeans: stable, wealthy, unified and able to impose its economic, political and military will on major powers on a different continent. (The Russians were part of Europe and could be explained within the European paradigm. So while the Europeans may have disdained the Russians, the Russians were still viewed as poor cousins, part of the family playing by more or less European rules.) New and unprecedented, the United States towered over Europe, which went from dominance to psychosis to military, political and cultural subjugation in a twinkling of history’s eye.

Paradoxically, it was the United States that gave the first shape to Europe’s future, beginning with Western Europe. World War II’s outcome brought the United States and Soviet Union to the center of Germany, dividing it. A new war was possible, and the reality and risks of the Cold War were obvious. The United States needed a united Western Europe to contain the Soviets. It created NATO to integrate Europe and the United States politically and militarily. This created the principle of transnational organizations integrating Europe. The United States also encouraged economic cooperation both within Europe and between North America and Europe — in stark contrast to the mercantilist imperiums of recent history — giving rise to the European Union’s precursors. Over the decades of the Cold War, the Europeans committed themselves to a transnational project to create a united Europe of some sort in a way not fully defined.

There were two reasons for this thrust for unification. The first was the Cold War and collective defense. But the deeper reason was a hope for a European resurrection from the horrors of the 20th century. It was understood that German unification in 1871 created the conflicts and that the division of Germany in 1945 re-stabilized Europe. At the same time, Europe did not want to remain occupied or caught in an ongoing near-war situation. The Europeans were searching for a way to overcome their history.

One problem was the status of Germany. The deeper problem was nationalism. Not only had Europe failed to unite under a single flag via conquest but also World War I had shattered the major empires, creating a series of smaller states that had been fighting to be free. The argument was that it was nationalism, and not just German nationalism, that had created the 20th century. Europe’s task was therefore to overcome nationalism and create a structure in which Europe united and retained unique nations as cultural phenomena and not political or economic entities. At the same time, by embedding Germany in this process, the German problem would be solved as well.

A Means of Redemption

The European Union was designed not simply to be a useful economic tool but also to be a means of European redemption. The focus on economics was essential. It did not want to be a military alliance, since such alliances were the foundation of Europe’s tragedy. By focusing on economic matters while allowing military affairs to be linked to NATO and the United States, and by not creating a meaningful joint-European force, the Europeans avoided the part of their history that terrified them while pursuing the part that enticed them: economic prosperity. The idea was that free trade regulated by a central bureaucracy would suppress nationalism and create prosperity without abolishing national identity. The common currency — the euro — is the ultimate expression of this hope. The Europeans hoped that the existence of some Pan-European structure could grant wealth without surrendering the core of what it means to be French or Dutch or Italian.

Yet even during the post-World War II era of security and prosperity, some Europeans recoiled from the idea of a transfer of sovereignty. The consensus that many in the long line of supporters of European unification believed existed simply didn’t. And today’s euro crisis is the first serious crisis that Europe has faced in the years since, with nationalism beginning to re-emerge in full force.

In the end, Germans are Germans and Greeks are Greeks. Germany and Greece are different countries in different places with different value systems and interests. The idea of sacrificing for each other is a dubious concept. The idea of sacrificing for the European Union is a meaningless concept. The European Union has no moral claim on Europe beyond promising prosperity and offering a path to avoid conflict. These are not insignificant goals, but when the prosperity stops, a large part of the justification evaporates and the aversion to conflict (at least political discord) begins to dissolve.

Germany and Greece each have explanations for why the other is responsible for what has happened. For the Germans, it was the irresponsibility of the Greek government in buying political power with money it didn’t have to the point of falsifying economic data to obtain eurozone membership. For the Greeks, the problem is the hijacking of Europe by the Germans. Germany controls the eurozone’s monetary policy and has built a regulatory system that provides unfair privileges, so the Greeks believe, for Germany’s exports, economic structure and financial system. Each nation believes the other is taking advantage of the situation.

Political leaders are seeking accommodation, but their ability to accommodate each other is increasingly limited by public opinion growing more hostile not only to the particulars of the deal but to the principle of accommodation. The most important issue is not that Germany and Greece disagree (although they do, strongly) but that their publics are increasingly viewing each other as nationals of a foreign power who are pursuing their own selfish interests. Both sides say they want “more Europe,” but only if “more Europe” means more of what they want from the other.

Managing Sacrifice

Nationalism is the belief that your fate is bound up with your nation and your fellow citizens and you have an indifference to the fate of others. What the Europeanists tried to do was create institutions that made choosing between your own and others unnecessary. But they did this not with martial spirit or European myth, which horrified them. They made the argument prudently: You will like Europe because it will be prosperous, and with all of Europe prosperous there will be no need to choose between your nation and other nations. Their greatest claim was that Europe would not require sacrifice. To a people who lived through the 20th century, the absence of sacrifice was enormously seductive.

But, of course, prosperity comes and goes, and as it goes sacrifice is needed. And sacrifice — like wealth — is always unevenly distributed. That uneven distribution is determined not only by necessity but also by those who have power and control over institutions. From a national point of view, it is Germany and France that have the power, with the British happy to be out of the main fray. The weak are the rest of Europe, those who surrendered core sovereignty to the Germans and French and now face the burdens of managing sacrifice.

In the end, Europe will remain an enormously prosperous place. The net worth of Europe — its economic base, its intellectual capital, its organizational capabilities — is stunning. Those qualities do not evaporate. But crisis reshapes how they are managed, operated and distributed. This is now in question. Obviously, the future of the euro is now widely discussed. So the future of the free-trade zone will come to the fore. Germany is a massive economy by itself, exporting more per year than the gross domestic products of most of the world’s other nation-states. Does Greece or Portugal really want to give Germany a blank check to export what it wants with it, or would they prefer managed trade under their control? Play this forward past the euro crisis and the foundations of a unified Europe become questionable.

This is the stuff that banks and politicians need to worry about. The deeper worry is nationalism. European nationalism has always had a deeper engine than simply love of one’s own. It is also rooted in resentment of others. Europe is not necessarily unique in this, but it has experienced some of the greatest catastrophes in history because of it. Historically, the Europeans have hated well. We are very early in the process of accumulating grievances and remembering how to hate, but we have entered the process. How this is played out, how the politicians, financiers and media interpret these grievances, will have great implications for Europe. Out of it may come a broader sense of national betrayal, which was just what the European Union was supposed to prevent.

Stratfor.com: „The Divided States of Europe”

Text+analiza+grafica+sursa informationala: Stratfor.com

Autor: Marco Papic

Europe continues to be engulfed by economic crisis.  The global focus returns to Athens on June 28 as Greek parliamentarians debate austerity measures imposed on them by eurozone partners. If the Greeks vote down these measures, Athens will not receive its second bailout, which could create an even worse crisis in Europe and the world.

It is important to understand that the crisis is not fundamentally about Greece or even about the indebtedness of the entire currency bloc. After all, Greece represents only 2.5 percent of the eurozone’s gross domestic product (GDP), and the bloc’s fiscal numbers are not that bad when looked at in the aggregate. Its overall deficit and debt figures are in a better shape than those of the United States — the U.S. budget deficit stood at 10.6 percent of GDP in 2010, compared to 6.4 percent for the European Union — yet the focus continues to be on Europe.

That is because the real crisis is the more fundamental question of how the European continent is to be ruled in the 21st century. Europe has emerged from its subservience during the Cold War, when it was the geopolitical chessboard for the Soviet Union and the United States. It won its independence by default as the superpowers retreated: Russia withdrawing to its Soviet sphere of influence and the United States switching its focus to the Middle East after 9/11. Since the 1990s, Europe has dabbled with institutional reform but has left the fundamental question of political integration off the table, even as it integrated economically. This is ultimately the source of the current sovereign debt crisis, the lack of political oversight over economic integration gone wrong.

The eurozone’s economic crisis brought this question of Europe’s political fate into focus, but it is a recurring issue. Roughly every 100 years, Europe confronts this dilemma. The Continent suffers from overpopulation — of nations, not people. Europe has the largest concentration of independent nation-states per square foot than any other continent. While Africa is larger and has more countries, no continent has as many rich and relatively powerful countries as Europe does. This is because, geographically, the Continent is riddled with features that prevent the formation of a single political entity. Mountain ranges, peninsulas and islands limit the ability of large powers to dominate or conquer the smaller ones. No single river forms a unifying river valley that can dominate the rest of the Continent. The Danube comes close, but it drains into the practically landlocked Black Sea, the only exit from which is another practically landlocked sea, the Mediterranean. This limits Europe’s ability to produce an independent entity capable of global power projection.

However, Europe does have plenty of rivers, convenient transportation routes and well-sheltered harbors. This allows for capital generation at a number of points on the Continent, such as Vienna, Paris, London, Frankfurt, Rotterdam, Milan, Turin and Hamburg. Thus, while large armies have trouble physically pushing through the Continent and subverting various nations under one rule, ideas, capital, goods and services do not. This makes Europe rich (the Continent has at least the equivalent GDP of the United States, and it could be larger depending how one calculates it).

What makes Europe rich, however, also makes it fragmented. The current political and security architectures of Europe — the EU and NATO — were encouraged by the United States in order to unify the Continent so that it could present a somewhat united front against the Soviet Union. They did not grow organically out of the Continent. This is a problem because Moscow is no longer a threat for all European countries, Germany and France see Russia as a business partner and European states are facing their first true challenge to Continental governance, with fragmentation and suspicion returning in full force. Closer unification and the creation of some sort of United States of Europe seems like the obvious solution to the problems posed by the eurozone sovereign debt crisis — although the eurozone’s problems are many and not easily solved just by integration, and Europe’s geography and history favor fragmentation.

Confederation of Europe

The European Union is a confederation of states that outsources day-to-day management of many policy spheres to a bureaucratic arm (the European Commission) and monetary policy to the European Central Bank. The important policy issues, such as defense, foreign policy and taxation, remain the sole prerogatives of the states. The states still meet in various formats to deal with these problems. Solutions to the Greek, Irish and Portuguese fiscal problems are agreed upon by all eurozone states on an ad hoc basis, as is participation in the Libyan military campaign within the context of the European Union. Every important decision requires that the states meet and reach a mutually acceptable solution, often producing non-optimal outcomes that are products of compromise.

The best analogy for the contemporary European Union is found not in European history but in American history. This is the period between the successful Revolutionary War in 1783 and the ratification of the U.S. Constitution in 1788. Within that five-year period, the United States was governed by a set of laws drawn up in the Articles of the Confederation. The country had no executive, no government, no real army and no foreign policy. States retained their own armies and many had minor coastal navies. They conducted foreign and trade policy independent of the wishes of the Continental Congress, a supranational body that had less power than even the European Parliament of today (this despite Article VI of the Articles of Confederation, which stipulated that states would not be able to conduct independent foreign policy without the consent of Congress). Congress was supposed to raise funds from the states to fund such things as a Continental Army, pay benefits to the veterans of the Revolutionary War and pay back loans that European powers gave Americans during the war against the British. States, however, refused to give Congress money, and there was nothing anybody could do about it. Congress was forced to print money, causing the Confederation’s currency to become worthless.

With such a loose confederation set-up, the costs of the Revolutionary War were ultimately unbearable for the fledgling nation. The reality of the international system, which pitted the new nation against aggressive European powers looking to subvert America’s independence, soon engulfed the ideals of states’ independence and limited government. Social, economic and security burdens proved too great for individual states to contain and a powerless Congress to address.

Nothing brought this reality home more than a rebellion in Western Massachusetts led by Daniel Shays in 1787. Shays’ Rebellion was, at its heart, an economic crisis. Burdened by European lenders calling for repayment of America’s war debt, the states’ economies collapsed and with them the livelihoods of many rural farmers, many of whom were veterans of the Revolutionary War who had been promised benefits. Austerity measures — often in the form of land confiscation — were imposed on the rural poor to pay off the European creditors. Shays’ Rebellion was put down without the help of the Continental Congress essentially by a local Massachusetts militia acting without any real federal oversight. The rebellion was defeated, but America’s impotence was apparent for all to see, both foreign and domestic.

An economic crisis, domestic insecurity and constant fear of a British counterattack — Britain had not demobilized forts it held on the U.S. side of the Great Lakes — impressed upon the independent-minded states that a “more perfect union” was necessary. Thus the United States of America, as we know it today, was formed. States gave up their rights to conduct foreign policy, to set trade policies independent of each other and to withhold funds from the federal government. The United States set up an executive branch with powers to wage war and conduct foreign policy, as well as a legislature that could no longer be ignored. In 1794, the government’s response to the so-called Whiskey Rebellion in western Pennsylvania showed the strength of the federal arrangement, in stark contrast to the Continental Congress’ handling of Shays’ Rebellion. Washington dispatched an army of more than 10,000 men to suppress a few hundred distillers refusing to pay a new whiskey tax to fund the national debt, thereby sending a clear message of the new government’s overwhelming fiscal, political and military power.

When examining the evolution of the American Confederation into the United States of America, one can find many parallels with the European Union, among others a weak center, independent states, economic crisis and over-indebtedness. The most substantial difference between the United States in the late 18th century and Europe in the 21st century is the level of external threat. In 1787, Shays’ Rebellion impressed upon many Americans — particularly George Washington, who was irked by the crisis — just how weak the country was. If a band of farmers could threaten one of the strongest states in the union, what would the British forces still garrisoned on American soil and in Quebec to the north be able to do? States could independently muddle through the economic crisis, but they could not prevent a British counterattack or protect their merchant fleet against Barbary pirates. America could not survive another such mishap and such a wanton display of military and political impotence.

To America’s advantage, the states all shared similar geography as well as similar culture and language. Although they had different economic policies and interests, all of them ultimately depended upon seaborne Atlantic trade. The threat that such trade would be choked off by a superior naval force — or even by North African pirates — was a clear and present danger. The threat of British counterattack from the north may not have been an existential threat to the southern states, but they realized that if New York, Massachusetts and Pennsylvania were lost, the South might preserve some nominal independence but would quickly revert to de facto colonial status.

In Europe, there is no such clarity of what constitutes a threat. Even though there is a general sense — at least among the governing elites — that Europeans share economic interests, it is very clear that their security interests are not complementary. There is no agreed-upon perception of an external threat. For Central European states that only recently became European Union and NATO members, Russia still poses a threat. They have asked NATO (and even the European Union) to refocus on the European continent and for the alliance to reassure them of its commitment to their security. In return, they have seen France selling advanced helicopter carriers to Russia and Germany building an advanced military training center in Russia.

The Regionalization of Europe

The eurozone crisis — which is engulfing EU member states using the euro but is symbolically important for the entire European Union — is therefore a crisis of trust. Do the current political and security arrangements in Europe — the European Union and NATO — capture the right mix of nation-state interests? Do the member states of those organizations truly feel that they share the same fundamental fate? Are they willing, as the American colonies were at the end of the 18th century, to give up their independence in order to create a common front against political, economic and security concerns? And if the answer to these questions is no, then what are the alternative arrangements that do capture complementary nation-state interests?

On the security front, we already have our answer: the regionalization of European security organizations. NATO has ceased to effectively respond to the national security interests of European states. Germany and France have pursued an accommodationist attitude toward Russia, to the chagrin of the Baltic States and Central Europe. As a response, these Central European states have begun to arrange alternatives. The four Central European states that make up the regional Visegrad Group — Poland, the Czech Republic, Slovakia and Hungary — have used the forum as the mold in which to create a Central European battle group. Baltic States, threatened by Russia’s general resurgence, have looked to expand military and security cooperation with the Nordic countries, with Lithuania set to join the Nordic Battlegroup, of which Estonia is already a member. France and the United Kingdom have decided to enhance cooperation with an expansive military agreement at the end of 2010, and London has also expressed an interest in becoming close to the developing Baltic-Nordic cooperative military ventures.

Regionalization is currently most evident in security matters, but it is only a matter of time before it begins to manifest itself in political and economic matters as well. For example, German Chancellor Angela Merkel has been forthcoming about wanting Poland and the Czech Republic to speed up their efforts to enter the eurozone. Recently, both indicated that they had cooled on the idea of eurozone entry. The decision, of course, has a lot to do with the euro being in a state of crisis, but we cannot underestimate the underlying sense in Warsaw that Berlin is not committed to Poland’s security. Central Europeans may not currently be in the eurozone (save for Estonia, Slovenia and Slovakia), but the future of the eurozone is intertwined in its appeal to the rest of Europe as both an economic and political bloc. All EU member states are contractually obligated to enter the eurozone (save for Denmark and the United Kingdom, which negotiated opt-outs). From Germany’s perspective, membership of the Czech Republic and Poland is more important than that of peripheral Europe. Germany’s trade with Poland and the Czech Republic alone is greater than its trade with Spain, Greece, Ireland and Portugal combined.

The security regionalization of Europe is not a good sign for the future of the eurozone. A monetary union cannot be grafted onto security disunion, especially if the solution to the eurozone crisis becomes more integration. Warsaw is not going to give Berlin veto power over its budget spending if the two are not in agreement over what constitutes a security threat. This argument may seem simple, and it is cogent precisely because it is. Taxation is one of the most basic forms of state sovereignty, and one does not share it with countries that do not share one’s political, economic and security fate.

This goes for any country, not just Poland. If the solution to the eurozone crisis is greater integration, then the interests of the integrating states have to be closely aligned on more than just economic matters. The U.S. example from the late 18th century is particularly instructive, as one could make a cogent argument that American states had more divergent economic interests than European states do today, and yet their security concerns brought them together. In fact, the moment the external threat diminished in the mid-19th century due to Europe’s exhaustion from the Napoleonic Wars, American unity was shaken by the Civil War. America’s economic and cultural bifurcation, which existed even during the Revolutionary War, erupted in conflagration the moment the external threat was removed.

The bottom line is that Europeans have to agree on more than just a 3 percent budget-deficit threshold as the foundation for closer integration. Control over budgets goes to the very heart of sovereignty, and European nations will not give up that control unless they know their security and political interests will be taken seriously by their neighbors.

Europe’s Spheres of Influence

We therefore see Europe evolving into a set of regionalized groupings. These organizations may have different ideas about security and economic matters, one country may even belong to more than one grouping, but for the most part membership will largely be based on location on the Continent. This will not happen overnight. Germany, France and other core economies have a vested interest in preserving the eurozone in its current form for the short-term — perhaps as long as another decade — since the economic contagion from Greece is an existential concern for the moment. In the long-term, however, regional organizations of like-minded blocs is the path that seems to be evolving in Europe, especially if Germany decides that its relationship with core eurozone countries and Central Europe is more important than its relationship with the periphery.

We can separate the blocs into four main fledgling groupings, which are not mutually exclusive, as a sort of model to depict the evolving relationships among countries in Europe:

  1. The German sphere of influence (Germany, Austria, the Netherlands, Belgium, Luxembourg, Czech Republic, Hungary, Croatia, Switzerland, Slovenia, Slovakia and Finland): These core eurozone economies are not disadvantaged by Germany’s competitiveness, or they depend on German trade for economic benefit, and they are not inherently threatened by Germany’s evolving relationship with Russia. Due to its isolation from the rest of Europe and proximity to Russia, Finland is not thrilled about Russia’s resurgence, but occasionally it prefers Germany’s careful accommodative approach to the aggressive approach of neighboring Sweden or Poland. Hungary, the Czech Republic and Slovakia are the most concerned about the Russia-Germany relationship, but not to the extent that Poland and the Baltic states are, and they may decide to remain in the German sphere of influence for economic reasons.
  2. The Nordic regional bloc (Sweden, Norway, Finland, Denmark, Iceland, Estonia, Lithuania and Latvia): These mostly non-eurozone states generally see Russia’s resurgence in a negative light. The Baltic states are seen as part of the Nordic sphere of influence (especially Sweden’s), which leads toward problems with Russia. Germany is an important trade partner, but it is also seen as overbearing and as a competitor. Finland straddles this group and the German sphere of influence, depending on the issue.
  3. Visegrad-plus (Poland, Czech Republic, Slovakia, Hungary, Romania and Bulgaria). At the moment, the Visegrad Four belong to different spheres of influence. The Czech Republic, Slovakia and Hungary do not feel as exposed to Russia’s resurgence as Poland or Romania do. But they also are not completely satisfied with Germany’s attitude toward Russia. Poland is not strong enough to lead this group economically the way Sweden dominates the Nordic bloc. Other than security cooperation, the Visegrad countries have little to offer each other at the moment. Poland intends to change that by lobbying for more funding for new EU member states in the next six months of its EU presidency. That still does not constitute economic leadership.
  4. Mediterranean Europe (Italy, Spain, Portugal, Greece, Cyprus and Malta): These are Europe’s peripheral states. Their security concerns are unique due to their exposure to illegal immigration via routes through Turkey and North Africa. Geographically, these countries are isolated from the main trade routes and lack the capital-generating centers of northern Europe, save for Italy’s Po River Valley (which in many ways does not belong to this group but could be thought of as a separate entity that could be seen as part of the German sphere of influence). These economies therefore face similar problems of over-indebtedness and lack of competitiveness. The question is, who would lead?

And then there are France and the United Kingdom. These countries do not really belong to any bloc. This is London’s traditional posture with regard to continental Europe, although it has recently begun to establish a relationship with the Nordic-Baltic group. France, meanwhile, could be considered part of the German sphere of influence. Paris is attempting to hold onto its leadership role in the eurozone and is revamping its labor-market rules and social benefits to sustain its connection to the German-dominated currency bloc, a painful process. However, France traditionally is also a Mediterranean country and has considered Central European alliances in order to surround Germany. It also recently entered into a new bilateral military relationship with the United Kingdom, in part as a hedge against its close relationship with Germany. If France decides to exit its partnership with Germany, it could quickly gain control of its normal sphere of influence in the Mediterranean, probably with enthusiastic backing from a host of other powers such as the United States and the United Kingdom. In fact, its discussion of a Mediterranean Union was a political hedge, an insurance policy, for exactly such a future.

The Price of Regional Hegemony

The alternative to the regionalization of Europe is clear German leadership that underwrites — economically and politically — greater European integration. If Berlin can overcome the anti-euro populism that is feeding on bailout fatigue in the eurozone core, it could continue to support the periphery and prove its commitment to the eurozone and the European Union. Germany is also trying to show Central Europe that its relationship with Russia is a net positive by using its negotiations with Moscow over Moldova as an example of German political clout.

Central Europeans, however, are already putting Germany’s leadership and commitment to the test. Poland assumes the EU presidency July 1 and has made the union’s commitment to increase funding for new EU member states, as well as EU defense cooperation, its main initiatives. Both policies are a test for Germany and an offer for it to reverse the ongoing security regionalization. If Berlin says no to new money for the newer EU member states — at stake is the union’s cohesion-policy funding, which in the 2007-2013 budget period totaled 177 billion euros — and no to EU-wide security/defense arrangements, then Warsaw, Prague and other Central European capitals have their answer. The question is whether Germany is serious about being a leader of Europe and paying the price to be the hegemon of a united Europe, which would not only mean funding bailouts but also standing up to Russia. If it places its relationship with Russia over its alliance with Central Europe, then it will be difficult for Central Europeans to follow Berlin. This will mean that the regionalization of Europe’s security architecture — via the Visegrad Group and Nordic-Baltic battle groups — makes sense. It will also mean that Central Europeans will have to find new ways to draw the United States into the region for security.

Common security perception is about states understanding that they share the same fate. American states understood this at the end of the 18th century, which is why they gave up their independence, setting the United States on the path toward superpower status. Europeans — at least at present — do not see their situation (or the world) in the same light. Bailouts are enacted not because Greeks share the same fate as Germans but because German bankers share the same fate as German taxpayers. This is a sign that integration has progressed to a point where economic fate is shared, but this is an inadequate baseline on which to build a common political union.

Bailing out Greece is seen as an affront to the German taxpayer, even though that same German taxpayer has benefited disproportionally from the eurozone’s creation. The German government understands the benefits of preserving the eurozone — which is why it continues bailing out the peripheral countries — but there has been no national debate in Germany to explain this logic to the populace. Germany is still waiting to have an open conversation with itself about its role and its future, and especially what price it is willing to pay for regional hegemony and remaining relevant in a world fast becoming dominated by powers capable of harnessing the resources of entire continents.

Without a coherent understanding in Europe that its states all share the same fate, the Greek crisis has little chance of being Europe’s Shays’ Rebellion, triggering deeper unification. Instead of a United States of Europe, its fate will be ongoing regionalization.

Daurel's Blog

Just another WordPress.com weblog

Florin Citu

A look at financial markets and government policies through the eye of a skeptic

La Stegaru'

"Aveţi de apărat onoarea de a fi stegari!", Nicolae Pescaru

ADRIAN NĂSTASE

Pune întrebarea și, împreună, vom găsi răspunsul!

Sociollogica

"Istoria ne legitimeaza ca singurele partide autentice de centru-dreapta", Crin Antonescu

Carl Schmitt Studien

"Istoria ne legitimeaza ca singurele partide autentice de centru-dreapta", Crin Antonescu

%d blogeri au apreciat asta: