DARK CONTINENT....EUROPE’S TWENTIETH CENTURY

This is the title of an excellent  book by Mark Mazower , first published in 1998, which I have just finished.

Among the fascinating questions prompted by reading it are

+ Why did democracy, triumphant in the immediate aftermath of the First World War, become almost extinct across much of continental Europe in the following 20 years?

+ Was the League of Nations policy to protect national minorities doomed to failure and was the  alternative policy of ethnic cleansing, practised at the end of the Second World War, thus inevitable? Even to this day, European countries have not devised a good way of creating a sense of belonging among national and religious minorities? In some European countries, minorities now make up a disproportionate share of the prison population. Sport seems to be one of the few ways in which minorities are integrated.

+ Why did the leaders of Britain and France assume that Hitler could be appeased with territorial concessions, when “Mein Kampf” had suggested his ambitions were much greater?

+ Was there an alternative in the 1920’s to the return to the Gold Standard as a way of combating the rampant inflation that had been fuelled by the financing of the First World War? In a sense the euro, like the Gold Standard, is also a method adopted by many countries of breaking away from a previous  vicious cycle of inflation and devaluation

+ Why was the Soviet model so effective in the period from 1930 to 1950, in industrialising Russia and enabling it to defeat Nazi Germany, so ineffective afterwards in meeting the consumer aspirations of its citizens?  Mazower says Stalinism was a “bad idea, implemented surprisingly well”.  Communism collapsed later on, because Communist Party members had ceased to believe in it, and Russia itself had become tired of subsidizing its East European satellites to the extent of 2% of Russian GDP through artificially cheap energy.

+ Why did Hitler make the mistake of killing so many people (including 3 million Soviet POWs) who could instead have been put to work in his labour starved armaments industries?  

+ What accounts for the surge in marriage and child births in the aftermath of the Second World War, and for the unsustainable decline in birth rates in more recent times?  As the author puts it, “marriage has become a choice rather than a duty”. 

+ Why did European countries diverge so much in the way they developed their welfare systems after the Second World War? The UK opted for a minimum income guarantee financed by taxes, whereas most continental countries opted for  pay related systems, whereby better off people paid bigger contributions to the state, but got bigger pensions on retirement. The result is that in many continental countries the biggest beneficiaries of “welfare” systems are the better off.

  

+ What will become of nation states, when so many of the important decisions have, in practical terms, to be takes at a multinational or supranational level?

As the author puts it “nation states are becoming mere shells, with no real hold over policy, while alienation from government has increased”. 

Mazower says the real victor in 1989 at the fall of Communism was “not democracy but capitalism”. 

But the problem we now face, as Europe tries to manage financial and banking issues, is that “capitalism does not create feelings of belonging capable of rivalling the sense of allegiance felt by most people to the state in which they live”.

European Electorates continue to see all problems within a national framework, even though many modern problems cannot be solved in that framework.

VICTORIA.....A LIFE

I  had not really expected to, but I greatly enjoyed reading the above titled biography of Queen Victoria, by A.N. Wilson, which was published last year.

Early in her reign, Victoria was much influenced by her highly intelligent German husband, Prince Albert. As well as being an energetic promoter of public works of all kinds, Albert had definite ideas about foreign policy. He wanted to use marriages between members of European royal families as a means of building a structure of peace and interdependency in Europe.  In his view, Royal marriages ought to serve the same purpose that economic integration serves in the EU today.  Thus his and Victoria’s children were married into the Prussian, Danish and Russian royal families. The focus of attention in Albert’s time was on Europe.

After 1861 the focus changed. When Albert died in 1861, Victoria went into a long and self indulgent period of reclusive mourning. When she emerged from this she came under the influence of Benjamin Disraeli, her Conservative Prime Minister.

Disraeli needed to come up with a project that would enable his party to win votes among the newly enfranchised working class . His project was the elevation of Imperialism to the status of a national and party ideal, and his means was the conferral on the Queen of the title “Empress of India”. She was delighted and became an ardent Tory.

The grandeur of this title, and the aspirations it entailed, appealed to the Queen, but also to the mass electorate that the Conservative Party wanted to win. 

Winston Churchill was a Conservative in this tradition, and one can even discern echoes of Imperial nostalgia in the anti European sentiment in the Tory party today. If one has given one’s heart to an ideal of “Empire”, how can one settle into a mundane existence as  just one of 28 countries in a European Union?!

This book is also the story of a family, with all its foibles and tragedies.  Victoria’s relationship with her son and heir was very bad. She got on well with all her Prime Ministers, except Gladstone, who she disliked greatly.

She was a prolific writer. A lot of her correspondence and diaries were edited, or destroyed, by her family after her death.  So the exact nature of her relationship with her Scottish manservant, John Brown, is not determinable. But she did ask to be buried wearing his mother’s ring, which he had given her.

ALEXIS FITZGERALD, FORMER TD AND SENATOR RIP

irishtimes.com

I wish to pay tribute to the memory of my friend Alexis FitzGerald,  former Dail Deputy and Senator,who died in the past hours.

Alexis and I were in school together so we have known one another for a very long time. He was immensely loyal to all those with whom he had been associated at school, in business, and in politics.  He had a deep sense of public service and great personal kindness.

In business, he was conscientious and attentive to his clients, which was the secret of his considerable success as an auctioneer.

I wish to express heartfelt sympathy to Mary and his children at this time of immense loss.

ARE THE CONDITIONS BEING IMPOSED ON GREECE TOO SEVERE?

.............PROBABLY NOT, BUT GREECE NEEDS HELP WITH THE RECEPTION OF SYRIAN REFUGEES.

If Greeks themselves do not trust their own government and their own banks with their money, it is difficult to expect the taxpayers of other countries to do so. Yet that is what the critics of the severity of the conditions imposed for the third Greek bailout seem to expect.

The euro was not imposed on Greece. It was something that Greece joined of its own accord.

The fact that the possibility of Greece leaving the euro was raised by Germany, has been greeted by some as dealing a blow to the euro because it supposedly ended the notion of the euro being “irreversible”.

But nothing in political life is irreversible, even though some things, like the Byzantine and Ottoman Empires, did last a very long time indeed. “Irreversibility” was always a legal fiction, and fiction is not a sound basis for an economic policy. 

The euro is a contingent compromise, where members trade some short term losses for greater long term gains. A euro, where rules were easily broken, would not endure.

I agree with those who say that, eventually, some of the Greek debt will have to written off. That is both financially necessary and morally just.

But that can only be contemplated when the Greek political and administrative system has reformed itself, and is capable of benefitting from a write off, and not looking at it as a precedent for a further write offs later on. We are not there yet.

The crucial difficulty seems to be that the Greek state does not work. The fact that Tsipras’ offer of reforms had to be crafted, not by Greek civil servants on their own, but with the help of French officials, tells its own story.

Some complain that elements of the package involve intrusion on Greek “sovereignty”. But a state is only sovereign to the extent that it is capable of performing the functions of a state and of fulfilling the internal and international responsibilities of a state.  I believe Greece needs help in this regard, and it would be good if the World Bank, as well as the IMF, were involved in helping Greece reform its public administration.

Recapitalising the Greek banks will be a major task. Interestingly the biggest exposure to the Greek banks is held by UK banks. The UK is not in the euro, and is not contributing to the Greek bailout, which could be regarded as unfair.

Some argue that the austerity, that Greece is going through to meet its international obligations, is damaging its economic growth prospects. In the short run, this is true. But fuelling temporary growth, by taking on even MORE debts, would not be  an answer. That would weaken longer term growth prospects, because of the additional debt service it  would entail.

The important way of  improving growth prospects is by  generating confidence. If people believe the future will be better, and can borrow money to invest in it, the economy will grow. With renewed confidence, some of the money that Greeks themselves have moved abroad will then come back to Greece. If the bailout terms are fully and quickly implemented, by both Greece and its creditors, that will restore confidence, especially if it is rewarded  by a prospect of some conditional and staged debt write offs.

Meanwhile Greece is in close proximity to the biggest refugee crisis in world history, caused by the Syrian and Iraqi civil wars. More migrants are now arriving in Greece from the Middle East, than are arriving in Italy from North Africa. 65% of the arrivals in Greece are Syrian.

Greece’s neighbour, Turkey, is already providing shelter for 1.8 million Syrian refugees. Meanwhile most Western countries are reluctant to take in any refugees. Greece, because of its geographic position, does not have that luxury.

The European Union should reorientate its Development Aid programmes to help middle income countries, like Greece, Turkey, Lebanon and Jordan, which are facing major refugee inflows, to cope with that huge burden. 

Some EU countries, like Germany and Sweden, are hosting many refugees. But most are keeping their heads down and doing little or nothing.

There should be burden sharing, based on relative income and population. Countries that are receiving the largest proportionate number of refugees , should be getting direct ongoing cash help from those that are receiving the least.

SHOULD THE GREEK VOTERS PAY HEED TO AMERICAN ECONOMISTS?

Paul Krugman, in the “New York Times”, urges the Greeks to vote “No” in the referendum next Sunday. So does Joe Stiglitz, in another article in the “Guardian”. Is this serious advice, or an unhelpful extension to Europe of an ongoing American polemic?

Paul Krugman says the Euro was a “terrible mistake” because he claims it failed to insulate the public finances of the states of the euro zone from bubbles in particular countries, like he says the US system does. In fact, the US only does this to a limited extent, and, unlike the EU, it has no general bailout fund  for states.

If I recall things correctly, our present collapse in confidence originated in the United States, in a housing bubble in a small number of US states, that eventually engulfed the whole world! The US system did not prevent that.

Puerto Rico, a US dependency which is in the dollar zone, has got itself into a Greek style debt trap, without the US monetary union, which is much older and stronger than the EU one, being able to prevent it. 

Krugman says that “most of what you hear about Greek profligacy is false”.

He makes this bizarre claim on the basis that Greece has made cuts and tax increases since 2010. He completely ignores the profligacy, poor tax collection, and the debt accumulation, that went on for decades before that, when Greece erected a completely unsustainable pension regime, on the strength of borrowed money.

He says that, since 2010, the Greek economy has collapsed because of “austerity”.

He fails to outline what the Greeks might have used for money since 2010 if, as he seems to advocate, they had continued with their previous “non austere” spending policies. They would not have been able to borrow the difference on commercial markets. Where would they have got the money? Just because a country is in the euro zone it does not mean it can have an unlimited call on the taxes  or loans of other euro members.

While there is more to do, like euro area wide deposit insurance, the EU has remedied many of the initial design flaws in the euro, something Paul Krugman does not acknowledge.

He says that “even harsher austerity is a dead end”, as if cuts and tax increases were all that the EU has been urging unsuccessfully on the Greeks.

Product and labour market reforms, opening up the professions, better tax collection, and privatisations, have been an important part of the recipe urged on Greece by the EU, and these would greatly improve the allocative efficiency of the Greek economy, and promote growth. Greece needs to move its human resources out of unproductive activities, into areas that will earn money from abroad and the EU reforms will assist that.

Another Nobel Prize winning economist, Joe Stiglitz, in his article in  “Guardian” also calls for a “No” vote, but is more extreme.

He claims the euro zone was ”never a democratic project”. He seems to have completely forgotten that the Maastricht Treaty, which created the legal basis for the euro, was approved by the elected parliaments of every state that is currently a member. It was approved in referenda in several countries, including France and Ireland.

Furthermore each of  the Eurogroup of Finance Ministers, who make all the key decisions, represent democratically elected governments.

Greece was not forced to join the euro, in the conditions, and at the time, that it did. This was a free choice of the Greek government.  Now, governments everywhere would sometimes like to repudiate some decisions of their predecessors, but if that luxury is to be afforded it would destroy the basis for credit and inter state relations.

He makes a more substantial point when he says that a good deal of the money, lent to Greece by the taxpayers of other EU countries and the IMF,  has gone to help them pay debts they owe to private creditors. But he fails to point out that, unlike those of Ireland and Portugal, Greece’s private creditors have been obliged to take a haircut.

It is true that the money from the EU has  been used in part to repay banks money they had put into Greek government bonds. Some of these banks were indeed French and German. But some were from outside the euro zone altogether, including from Professor Stiglitz’s own country and from the UK, in one of whose newspapers he is writing.

Back in the 2010/2012 period, thanks the crisis which started after Lehman Brothers went south, there was a legitimate public interest, a public good, in preventing a run on ANY of these banks. 

There remains a justifiable argument, however, that it was unfair that the taxpayers of a few countries should now be bearing a disproportionate share of the cost of this public good, which the whole world has enjoyed.

Yes, the taxpayers of the rest of the euro zone should, in moral terms, bear more of the burden.

But if that is so, so also should the taxpayers of non euro zone countries like the US and the UK, whose banks were also saved when Ireland, Greece and Portugal got help. 

Why should German taxpayers, whose personal incomes have grown more slowly than elsewhere in Europe, and who face substantial extra costs in the near future due to ageing, be the focus of all the wrath?

But then neither Professor Krugman, nor Professor Stiglitz are writing for German, Slovak, Latvian public opinion.

They are writing in journals, published in countries, whose governments are not being asked to write more and more cheques for a Greek Government, that seems to blame everyone else for home grown problems. 

There is, I believe, an argument for a comprehensive debt conference to consider whether the burdens of dealing with the aftermath of the Lehman collapse, have been fairly distributed between the governments of the world.

But the convening of any such conference, and eligibility for any help from it, should be something that might happen five years from now, and be conditional on growth promoting reforms, and budget balancing, already having been fully implemented by governments seeking debt relief from it. Perhaps a Third Party might put such a proposal forward, as a way of getting out of the terrible situation Greece is bringing upon itself.