Op-ed
A European War Union? – Project Syndicate op-ed
Advocates of European unity used to celebrate the European Union as a peace project. But well before Russia invaded Ukraine, the European vision of a peaceful road to shared prosperity had begun to frazzle, and now the invasion has facilitated the EU’s mutation into something much uglier.
ATHENS – Europe has become unrecognizable. Advocates of European unity used to celebrate the European Union as a peace project pitting a splendid cosmopolitanism against nationalism – which, as French President François Mitterrand dramatically put it in 1995, “equals war.” But well before Russia invaded Ukraine, the Europeanist vision of a peaceful road to shared prosperity had begun to frazzle. Russia’s invasion merely accelerated the EU’s mutation into something much uglier.
Josep Borrell, the EU’s foreign affairs chief, gave us a whiff of the shift from cosmopolitanism to ethno-regionalism when he described the EU as a beautiful “garden” threatened by the non-European “jungle” lurking outside its borders. More recently, French President Emmanuel Macron and Charles Michel, the European Council’s president, asked Europeans not only to prepare for war but, crucially, to rely on its arms industry for the EU’s economic growth and technological advancement. Having failed to convince Germany, and the so-called frugal nation-states, of the need for a proper fiscal union, their desperate fallback position is now to argue for a war union.
This is a pivotal moment in the EU’s checkered history. Setting aside a vociferous minority of Euroskeptics, the main difference of opinion between pro-EU political forces concerned whether Europe’s continental consolidation ought to proceed by Hamiltonian means (debt mutualization precipitating the emergence of a proper federation) or in the original intergovernmental way (gradual market integration). The governments presiding over surplus economies favored the latter, whereas the deficit economies’ representatives, understandably, leaned toward a Hamiltonian solution, which was thus placed permanently on the backburner.
The euro crisis exposed the impossibility of continuing the pretense that debts, banks, and taxes can be national while the currency is transnational and markets are integrated. Alas, the EU chose to do the minimum necessary to save the euro and ended up with the worst of both worlds: a grossly ineffective quasi-fiscal union (lacking a proper sovereign debt instrument, like US Treasuries), and a European Central Bank forced to violate its charter time and again (hiding behind increasingly creative justifications). Perhaps most damagingly, the rickety political process that distributes common monies and joint burdens lacks even an iota of a smidgeon of democratic legitimacy.
For decades, some of us campaigned for a European Green New Deal. With federation infeasible in the near term, we proposed ways to simulate federal debt instruments (such as an ECB-issued eurobond) with which to generate, via the European Investment Bank, a minimum of €500 billion ($539 billion) annually for a Green Energy-Tech-Transition investment fund. Instead, EU decision-makers adopted smoke-and-mirrors alternatives, like the designed-to-fail Juncker Plan and, during the pandemic, a Recovery Fund that created common debt for no good common purpose.
This is why the EU’s economy is now broken, with the German business model that used to be its beating heart in a state of rapid decline. By choosing a half-a-loaf strategy (neither a fiscal union nor separate debts and central-bank assets), the EU condemned itself to two decades of minimal investment, thus failing to develop the technologies Europe needs: green tech (which would allow Europe to decouple from Russian President Vladimir Putin’s cheap gas on its terms) and cloud capital. The United States and China, which now monopolize cloud capital, the new instrument for wealth accumulation, also have imposed a new cold war on Europe, with catastrophic repercussions for German industry’s access to Chinese export markets.
Europeans in authority are, regrettably, refusing to recognize how broken the EU’s business model is, or how irrelevant old remedies in new packages will prove. Germany, for example, is back to considering tax-funded energy subsidies and new rounds of wage restraint to aid competitiveness.
This debate is a dangerous distraction from Europe’s real problem: German industrial capital no longer accumulates the surpluses from which to fund energy subsidies for declining industries. In this context, no wage restraint (of the sort that then-Chancellor Gerhard Schröder once pulled off) will boost the competitiveness of a car industry incapable of producing the battery technologies or the algorithms that add substantial new value to manufacturers of modern electric vehicles.
Now what? Michel seems to have retrieved from the dustbin of recent European history our proposals for a eurobond and for invigorating the EIB. But he is not proposing to use the new credits to fund green tech or cloud capital, but for a new arms industry that will, he says, “be a powerful means to strengthen our technological, innovation, and industrial base.”
Can Michel be serious? How will the EIB recoup its loans to the defense industry, which by definition is unproductive? What will happen when our warehouses are full of ammunition and missiles? Either the investment drive Michel envisages will dry up or Europe will need to find ways – in other words, new wars – to deplete the stocks.
Sensible Europeanists should, therefore, pray that Michel’s plan goes the way of the Juncker Plan. The EU’s incompetence suddenly has become the peace-loving Europeanist’s last hope.
I miss the times when pro-Europeans celebrated the EU, however hypocritically, as a project to pull borders down and to sponsor openness, difference, and tolerance. That Europe is finished, broken, in full retreat. A new ideology has taken hold. Instead of a diverse democratic federation that appeals to the peoples beyond its borders, it envisages a white Christian realm ringed by expensive missile launchers and tall electrified fences. This is a Europe that the young cannot feel proud of and that the rest of the world will not take seriously.
For the Project Syndicate site, click here.
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The roots of European farmers’ anger were baked into the EU – UNHERD
Manos, a sixth-generation farmer from Thessaly, put it to me bluntly when I asked him to explain why he was prepared to drive his tractor 400km to Athens to camp outside Parliament: “If I don’t, my farm will soon follow our village school, co-op, post office and bank branch into oblivion.”
His story is neither novel nor confined to Greece. We are accustomed to French farmers, in particular, blocking roads and exacting a significant price from politicians before returning to their home turf. Occasionally, an impressive stunt has been staged in Brussels — as in 2012 when a multinational farmers’ coalition sprayed the European Parliament with tons of milk, in protest against cuts to EU milk quotas.
What is new, in this latest round of farmers’ protests, is that it is not only the usual suspects who have taken to the streets of our capitals. Our television screens are showing farmers mobilising across the European Union, from Poland to Ireland. We are not used to German and Dutch farmers, traditionally much wealthier relative to their Graeco-Latin colleagues, entering our cities with the passion — and in the numbers — that we are now witnessing.
If you ask the Dutch or the German farmers why they are revolting, their answer is similar to the one Manos gave me: they will tell you that their way life, their capacity to keep working the land, is in jeopardy. I believe them. But British farmers are also facing an existential threat and they are not blocking motorways. Almost half the UK’s fruit and vegetable growers and a third of dairy farmers face bankruptcy within less than two years. So why are they not blocking Piccadilly or occupying Trafalgar Square in anger? Cultural differences may play a role but a structural feature of the EU explains why European farmers are revolting and British farmers are not.
In theory, the EU is all about free-market liberalism; in reality, it began life as a cartel of coal and steel producers who, openly and legally, controlled prices and output by means of a multinational bureaucracy. That bureaucracy, the first European Commission, was vested with legal and political powers superseding national parliaments and democratic processes. And its first task was to remove all restrictions on the movement and trading of steel and coal between member-states. After all, what would be the point of a cross-border cartel if its products were stopped at borders and taxed? Brussels’s second step was to expand the scope of the cartel beyond coal and steel, co-opting the electrical goods industry, car manufacturers and, of course, banking. The third step, once tariffs on manufacturers were removed, was to remove all tariffs.
Alas, that meant, among other things, untrammelled competition from imported milk, cheese and wine for French and German farmers. How could Brussels secure the consent of these larger, richer and therefore politically more powerful farmers to a European free-trade zone? By handing them a chunk of the heavy industry cartel’s monopoly profits.
That’s precisely what the Common Agricultural Policy (CAP) was. You can see it in the Treaty of Rome, which established today’s EU: it is a contract between Europe’s heavy industry cartel and Europe’s wealthier farmers, according to which the largest chunk of the European budget, generated by the former, would be sprinkled upon the latter. In 2021, the EU allocated €378 billion for CAP: 31.8% of its total budget for the six-year period 2021-2027. Of this mountain of euros, about 80% ends up in the pockets of the richest 20% of Europe’s farmers. And the worst thing is, it’s hard to see a way out: these mind-boggling sums, and their unequal distribution, are based on the mid-Fifties deal that gave us the original EU; they’re baked into its structure.
That unequal distribution was justified by claims of “productivity”. Large landowners are far more profitable per acre cultivated, or per farmworker. For instance, according to the Financial Times, in 2021, each additional worker boosted the net value of a small farm — defined as a farm with a total output worth between €4,000 and €25,000 — by around €7,000. By contrast, an additional worker increased the net value of a large farm — one with an output worth more than half a million euros — by €55,000.
As a result, traditionally most farmers in the south of Europe — including in large parts of France, where farm plots are much smaller than, say, in Germany or the Netherlands — merely survived. Meanwhile, their northern colleagues commanded substantial profits, resources and subsidies.
What is the point of Nato?
This explains why Greek, Spanish, Southern Italian and French farmers always had the greatest tendency to block roads: six decades ago they were cut a deal that didn’t serve their best interests. Today, however, with de-industrialisation now proceeding apace even in Germany, the original, pan-European industrial cartel that was meant to pay for the rich farmers’ generous subsidies is also in decline.
As for farmers such as Manos, a combination of old problems and new calamities has taken its toll. Last autumn, the climate crisis paid his valley a visit when Storm Daniel destroyed all his equipment by submerging his land in metres of water, before moving south to drown thousands of people in Libya. The usual, ridiculously long, delays that characterise bureaucracy in Greece meant its insurance companies were slow to come to Manos’s help.
But an even uglier source of discontent among his peers is the mass repossessions of farms by the numerous vulture funds. Taking advantage of Greece’s long-standing bankruptcy, they have entered the country to purchase non-performing farmers’ loans, at five cents to the euro, before auctioning off the land. In this way, oligarchic interests grab fertile agricultural land and, with grants and loans from Brussels, cover it with solar panels. Farmers and urbanite Greeks then pay through the nose for the electricity it produces. And as the former are squeezed, domestic food supplies become scarcer.
The countryside revolt against the Tories
Now, similar stories are playing out in wealthier parts of the EU: in the Netherlands and Germany. Here, there are three main triggers. Firstly, having surrendered what used to be public electricity utilities to the private cartel hiding behind the Dutch auction houses, the EU does nothing to protect farmers from the voracious appetites of energy speculators and rentiers. Secondly, there is the bureaucratic nightmare farmers must endure before they apply for the smallest of benefits, or even for the right to trim a tree whose branches poke them in the eye as they pass by in their tractors. Thirdly, there is Ukraine: not just the heightened fuel costs and the competition from €13 billion worth of “solidarity” imports last year alone but, more importantly, the prospect that, were the war-torn country to join the EU, most countries that are now net recipients of CAP funds, including Poland, will become net contributors, with their farmers bearing the brunt.
And then, of course, there are the two elephants in the room. One is the EU’s Green Deal. Brussels makes all the right environmental noises, demanding immediate green action, but lacks the ability to pay for it. Take the Dutch farmers’ bone of contention: the clear and present danger of nitrates in the water table, which must be addressed. After decades of turning a blind eye to the problem, their government — pressured by Brussels — suddenly demanded that Dutch farmers solve it by, among other measures, “eradicating” one in three cows.
Even more intractable is the second, and larger, elephant: a 15-year European economic slump that, to my eye, can be entirely explained by the inane handling of the euro crisis. This slump explains why the continent is deindustrialising. It’s why the Common Agricultural Policy can no longer respect the original, Fifties-era deal between Europe’s industrial and agricultural cartels. And it’s also the reason why the EU’s Green Deal is just another European Potemkin village — another product of the EU’s penchant for announcing big numbers that dissolve under closer scrutiny.
For the Unherd site, click here.
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Why is Labour still using the self-defeating, discredited ‘maxed out credit card’ analogy? The GUARDIAN
It is one thing to U-turn on a modest green transition programme. It is another to do so using mendacious Tory economic paradigms.
Rarely has a lacklustre policy been abandoned for a reason so bad that it threatens to inflict long-term damage on a society. Independently of whether the £28bn green investment programme was the right policy for the next Labour government to commit to, Rachel Reeves’s reasons for ditching it were an undeserved gift to the Tories and a partial vindication of their disgraceful flirtations with an austerian, anti-green political narrative.
Speaking on BBC Radio 4’s Today shortly after her U-turn on Labour’s headline £28bn green transition programme, the shadow chancellor explained her decision by claiming that, under Jeremy Hunt, the Treasury is “planning on maxing out the credit card”, adding for good effect that the Tories are “maxing out the headroom ahead of the next general election” thus limiting “what an incoming Labour government will be able to achieve”. By comparing the state’s coffers to an overladen credit card, Reeves endorsed an insidious fallacy.
If we owe George Osborne anything, it is irrefutable empirical evidence that using the analogy of a credit card for a nation’s budget (along with inane “belt tightening” and “fixing the roof when it is sunny” metaphors) is a terrible basis for prudent fiscal policy. It is true that the Tories will leave scorched earth behind for the next government, with a budget dripping in red ink and a pitiful level of investment in the technologies and services the UK needs to escape a long-term slump. But this is precisely the reason why Labour must reject the austerian urges that, inevitably, spring from the credit card analogy.
When your credit card is “maxed out”, you do indeed need immediately to tighten your belt. The reason why parsimony works for you, and helps limit your debt, is that you are blessed with an income that is independent of what you decide to spend money on. In other words, if you don’t buy the shoes or new phone you covet, your income will not diminish, and so your deficit will shrink reliably. But the state’s budget is nothing like a credit card. As chancellor of the exchequer, your (tax) income is highly dependent on your (public) spending. Limit your spending and you have limited your income too. This is why the more Osborne slashed public spending in the 2010s, the more money he needed to borrow. By adopting the “maxed credit card” narrative, Reeves endorsed Osborne’s flawed logic and, indirectly, absolved the Tories for the wanton damage they have inflicted on a generation of Britons.
Austerity, and the credit card analogy that provides its thin veneer of logic, is not just bad for workers and people in desperate need of state support during tough times; it also depresses investment. By hastening the stagnation of a society’s aggregate income, it signals to businesses that they would be mad to put money into building up the capacity to produce the output that society is too impecunious to buy. That’s how austerity undermined investment in Britain and that’s how it will annul Labour’s ambition to draw in private green investments, now that Reeves has ditched her modest green public investment plan, replacing it with wishful thinking that the private sector will, magically, make up the difference.
But none of this means that the ditched £28bn policy was optimal or, indeed, that an incoming chancellor can safely commit the Treasury to borrow and spend unlimited amounts. The difficulty that any British government faces today is that, since President Biden inaugurated his expansive green transition spending spree (improbably labelled the Inflation Reduction Act), the UK is caught up in a subsidy war between the US, China and, to some extent, Germany and France. This is a multitrillion-dollar subsidy contest that the UK cannot win and, thus, should not enter. In this context, were it to be spent as planned (ie, as Inflation Reduction Act-like subsidies for private business), Labour’s £28bn would be a mere drop in the ocean, incapable of diverting the torrent of capital rushing into the US and China.
If subsidies are a fool’s wager when competing with the US, whose central bank mints the world’s reserve currency, what should Britain do? Having dropped the fantasy that subsidies can attract battery manufacturers and microchip producers to the UK in numbers consistent with a British green industrial revolution, a Labour government should do two things. Set aside a modest sum (say, £6bn) to subsidise energy conservation and, critically, found a public investment bank to inject green investments into green tech enterprises directly (private or public) to the tune of up to 3% of national income annually. These large sums can be raised, not through Treasury bonds that need to be repaid by taxpayers, but by bonds issued by a new public investment bank – to be repaid from the proceeds of the green enterprises they fund. The Bank of England could also help with an announcement: if the price of these green bonds were to fall below a certain point, it would buy them second-hand – even while selling off its stock of Treasury bonds. This mere announcement would ensure it would not need actually to buy them because investors would rush in to snap them up, thus leaving Britain’s public debt servicing costs unaffected.
In 1942, John Maynard Keynes proclaimed: “Let us not submit to the vile doctrine of the 19th century that every enterprise must justify itself in pounds, shillings and pence of cash income … Assuredly we can afford this and so much more. Anything we can actually do, we can afford.” Britain’s conundrum, today, is that the next government, whose job will be to fix the Tories’ mess, is led by politicians who share neither Keynes’s aims nor his innovative approach to public finance. Judging by Reeves’s recent performance, they seem to care more about the fiscal hawks in their midst and in the Tory press. So much so that, to prove their mettle as bona fide austerians, they adopt the most pernicious allegory to have disgraced economic thinking.
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Yanis Varoufakis is an economist, author and secretary-general of MeRA25. His latest book is Technofeudalism: What Killed Capitalism
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For The Guardian’s site, click here
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NATO from the perspective of having grown up under US-sponsored neofascism – UNHERD
It was early September in 1971. My mother had taken me in a taxi to a boutique hotel in a leafy northern Athenian suburb to visit my favourite uncle, her beloved brother. Before we got out the car, she put her arm around me and whispered words of courage in my ear. You see, Hotel Pefkakia had been commandeered by the ESA, the Greek military regime’s version of the Gestapo, which had turned it into a holding cell for VIP dissidents. What I saw inside, including my uncle’s tortured face, ensured that, from the age of 10, I understood what it meant to live in a brutish dictatorship.
Everyone remembers that a swathe of Eastern European countries were once communist dictatorships. From the Baltic Sea to Poland to the Black Sea, they lingered under one-party rule, their peoples at the mercy of secret policemen. Less often discussed is the fact that, half a century ago, three of the European Union’s current member-states were fascist dictatorships: Portugal, Spain and Greece. But this history of Western European peoples toiling under Rightist, ultra-nationalist, fascist regimes is relevant, now that we are experiencing a surge of nationalism, a moral panic over migrants and refugees, and a craving for strongmen or women to make our countries “great again”. With this year’s European Parliament elections on the horizon, there are important lessons in this half-forgotten history.
I grew up in the supposed cradle of democracy, in a Greece ruled by tyrants swearing allegiance to an ideology not too different to the one making a comeback today across Europe. Establishment figures such as my uncle — who at the time was managing director of Siemens in Greece — rose up against it, and failed. But two years after I visited him that day, in November 1973, students spontaneously occupied Greece’s most prestigious university, the Athens Polytechnic. After five glorious days, during which the city centre was temporarily liberated from the regime, the army entered the city and, with a column of US-built tanks leading the way, liquidated the Polytechnic uprising. Following the tank that crushed the Polytechnic’s front gate, commandos and gendarmes — handpicked for their fascist allegiances — mopped up any remaining resistance. For weeks afterwards, police cells would echo with the screams of the students tortured therein.
The uprising was crushed, but the regime never recovered its poise. A couple of days later, a Brigadier General overthrew the Colonels in office and took the Rightist regime even further toward unfettered viciousness. This paroxysm of authoritarianism appeared in its most comical form on our television screens: news bulletins were read by stern, uniformed, be-medalled army officers barking orders at their viewers.
Six months later, perhaps in a desperate bid to stabilise their regime, our dictators overreached, with a shambolic attempt to extend their rule over the independent Republic of Cyprus. All they managed to do was trigger a brutal Turkish invasion of the island, which brought Greece and Turkey to the brink of war and resulted in countless dead, wounded and displaced Cypriots — a tragedy whose repercussions are still with us, in the form of the ugly Green Line dividing the island to this day. One might have thought a military regime would lovingly maintain its armed forces, but that episode exposed the weakness of Greece’s. It also crushed our economy just as the demise of Bretton Woods and the oil crisis were putting global capitalism into a tailspin. Within days, the junta crumpled. This year, in July, the nation will mark the 50th anniversary of a version of liberal democracy returning to Greece.
Just as well, given that the history of how the Greek junta came to be has largely been forgotten. It was imposed by rogue military officers in April 1967, but it was planned and enabled by various branches of the US government, as far back as the Fifties. Greece’s was part of a long series of coups d’état that the CIA staged around the world — from the 1953 coup that overthrew Mohammad Mosaddegh, Iran’s last democratically elected Prime Minister, to General Augusto Pinochet’s 1973 murder of President Salvador Allende in Chile.
What is relevant here is not why Washington felt the need to overthrow the centrist, pro-Western government of George Papandreou in 1965, before giving the green light to the Colonels, two years later, to dissolve Parliament and put Greek society “in plaster, exactly as the surgeon must do with a broken limb” — to quote the inimitable Colonel Geórgios Papadopoulos, the junta’s chief. Given the questions currently swirling round Europe, what I think matters is that, in 1967, the governments of France, Germany, Austria and to some extent Britain were vocally and tangibly opposed to the coup. The arrival of fascism in Greece caused a rift between Europe’s main powers and the United States, even though they were all on the same side of the Iron Curtain. Europe was an ally of Greece’s democrats, who were struggling against the Nato-aligned junta that the US supported.
In the summers of this era, my parents would drive us to Vienna or Munich, to “breathe the air of freedom”. The rest of the year, especially during the bleak nights, we would crouch next to the wireless to listen to Deutsche Welle and the BBC — covering ourselves with a red blanket to minimise the chances of being overheard by neighbours eager to inform on us. The Greek-language programmes on these channels, unlike the pro-junta Voice of America, were brimming with support for the democratic resistance.
In short, Europe supported a free Greece, while America betrayed it. It was thus not surprising that, once the junta had collapsed, a large cross-section of Greek society — including the conservative Prime Minister Konstantinos Karamanlis — were inimical to Nato but sympathetic, some enthusiastically so, toward the European Common Market, the forerunner of the EU. Contrary to what many Northern Europeans believe, most Greeks did not see the EU as the cash cow it became later on, but as a guarantee that the tanks would stay idle and the secret police at bay — something Eastern Europeans would also long for after the collapse of their dictatorships in 1991.
This explains why Greeks who remember our resistance to the junta proudly tend to have a very different view of Nato than Eastern Europeans with memories of their communist dictatorships. When Vladimir Putin ordered his troops to invade Ukraine, I condemned the Kremlin’s invasion as criminal, referred to Putin as a “ruthless killer”, called for all democrats to stand with Ukraine, and advocated for the West to negotiate an immediate end of the Ukraine war by trading the retreat of Russian troops for a pledge to keep Ukraine out of Nato. To me, what mattered most was that the West did whatever it took to push Russia’s troops back to where they were on 22 February 2022, while enabling Ukraine to flourish within liberal democratic Western Europe.
Alas, my comrades in Eastern Europe were not impressed. Razem, a Left-leaning Polish party, denounced me for failure to “support Ukrainian sovereignty”. On social media I was labelled a “westsplainer” and Putin’s useful idiot.
This split in our pan-European movement saddened me, but I tried to focus on its historical causes. In the eyes of my Eastern European comrades, Nato appears as a club of states that throws a protective shield around liberal democracies. From their perspective, Nato membership is crucial to Ukraine’s independence, and my suggestion that the country should stay out of Nato seemed like a betrayal of its democrats. To me, by contrast, having grown up under fascist regimes that not only had the blessing of Nato but which were largely engineered by CIA and Nato functionaries, seeing Ukraine’s membership as the key to its democratic future seemed absurd.
Of all the slogans that they could have written on the Polytechnic’s gate, the heroic Athens Polytechnic students who risked their lives to help restore Greek democracy chose two two-word phrases: OUT USA and OUT NATO. With their blue jeans and their predilection for jazz, they were not anti-American, but they were supremely resistant to the facts of living in a quasi-US colony where our national budget had to have the US Ambassador’s informal approval and in which Nato and the CIA controlled our military, our skies and seas, our secret police.
And while it is true that, in many advanced nations — such as the Netherlands and Denmark — Nato membership was fully consistent with liberal democracy, Greece was not the odd country out. The Portuguese, too, lived both under fascism and within Nato. Successive generations of Turkish democrats will tell you that it is utterly feasible to live in a Nato country that is oppressed by mind-numbing levels of authoritarianism. Indeed, no less a Western statesman than General Charles De Gaulle believed that Nato was detrimental to his nation’s sovereignty.
And yet, ever since Putin’s regime invaded Ukraine, we have lost our capacity, as Europeans, to have a rational and historically-grounded debate about whether Nato membership is detrimental to, or essential for, European liberal democracies.
Of course, some would argue that Nato membership is about defending a country from external threats, rather than guaranteeing democracy. But, arguably, Nato membership is neither necessary nor sufficient for a country’s defence. Greece’s greatest territorial threat is from Turkey, but Nato policy is that it only intervenes when a non-Nato country threatens one of its members. If Turkey, a Nato member, were to invade a Greek island, Nato would stay out of it. At the other extreme, Jordan, Egypt and, of course, Israel are fully under the US and Nato defence umbrella, even though they are not Nato members.
So, what is the point of Nato? A decade or so ago, I enjoyed an informal conversation with a former Chief of Staff of Nato’s forces in Europe. The American, a staunch Republican, was candid when I asked him whether Nato remained fit for purpose. “It depends on how you define its purpose,” he replied with a smile. I asked how he defined it. “It’s three-fold,” he said. “First, to keep us in Europe. Second to keep the Russians out. Third, to keep Germany down.” No analysis of Nato’s role in Europe that I have encountered since has been more accurate or prescient.
The question for Europeans today, as the war in Ukraine rolls on and the European Parliament elections loom, is simple: is it wise to assume that our democracies are strengthened when we hand over our foreign policy and defence to Nato — in other words, to the US government? Or did the Athens Polytechnic students, along with General De Gaulle, have a point when they feared that unthinking allegiance to Nato would accelerate Europe’s steady slide into vassal continent status? Personally, I will always side with the students.
For the UNHERD site, click here.
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Europe’s Bad China Bluff – Project Syndicate op-ed
Against the backdrop of the new cold war between the United States and China, the European Union’s top brass seems to be adding to the pressure on China by issuing credible threats in response to four grievances. Alas, the Chinese authorities are probably more amused than alarmed.
ATHENS – On the December 7, the presidents of the European Council and the European Commission, Charles Michel and Ursula von der Leyen, respectively, attended the 24th European Union-China Summit to convey a stern message to Chinese President Xi Jinping. In the eyes of European and American public opinion, and against the backdrop of the new cold war between the United States and China, the EU’s top brass seemed to be adding to the pressure on China by issuing credible threats in response to four grievances. Alas, the Chinese authorities were probably more amused than alarmed by what they heard.
The EU’s first grievance concerns “unbalanced trade.” Von der Leyen put it colorfully claiming that “for every three containers that go from China to Europe, two containers return empty.”
There is, of course, no doubt that sustained trade imbalances may well reflect a mercantilist strategy for permanent surpluses. But the EU accusing China of mercantilism is a bit rich. Over the past decade, China’s current-account surplus averaged 1.65%, while that of the eurozone averaged 2.24%. In the same period, the main engine of Europe’s economy, Germany, recorded an eye-watering 7.44% surplus
The EU’s second grievance is that China’s state aid amounts to dumping Chinese exports into Europe’s markets. Undoubtedly, such a grievance made considerable sense in the late 1990s and early 2000s, when, far from complaining about Chinese dumping, the EU – along with the US – were waxing lyrical about China’s induction into the West’s circuits of trade and capital. But why raise this grievance now that the charge of mercantilism has lost its basis in reality?
After all, Chinese batteries or electric vehicles (EVs) are competitive in Europe not because of subsidies but because of massive Chinese investment in their development. Today, Chinese solar panels have achieved a quality that Europe simply cannot match – with or without state aid.
Volkswagen, one of China’s largest domestic automakers, used to import German parts as well as industrial robots. Today, Volkswagen sources all the parts and capital goods it needs to produce cars in China from China, adding to Europe’s trade woes.
And it is not just the trade surplus that has been reversed. After relying for decades on German engineers to design its cars, Volkswagen is in the process of hiring up to 3,000 Chinese engineers for the next generation of all-electric cars that it plans to sell in China and in Europe. More broadly, since 2008, while the EU was imposing severe austerity across Europe, crushing investment in its industries in the process, China was boosting its investments to a world record ratio of almost 50% of its national income.
Blaming Chinese mercantilism only raises eyebrows, especially among German industrialists who spent the past 50 years arguing that Germany’ persistent trade surplus with the rest of the world reflected global demand for high-quality German products. Whatever von der Leyen says to China’s leaders, these same industrialists know that their Chinese counterparts making solar panels, batteries, and EVs have earned the right to make a similar claim.
Michel and von der Leyen’s third grievance is that European firms find it hard to secure Chinese government contracts. Together with the previous two grievances, these are the grounds on which EU officials have built their case for punitive measures against China’s exporters – in particular, high tariffs on EVs (and green tech more generally). But, while officials cite the formal investigation of Chinese EVs that is already underway in Brussels, it all seems unconvincing.
European industrial leaders to whom I have spoken privately admit that they view these threats as evidence of EU leaders’ panic at the realization that Europe has lost competitiveness in crucial fields. One rhetorically asked: “Does von der Leyen truly believe that the threat of tariffs on BYD’s EVs will boost [European] exports to China?”
To be sure, European firms complain about a skewed playing field in China, especially when it comes to government procurement. But they cannot see how this will change if, as a result of enormous US pressure, EU governments increasingly bar Chinese companies from their own procurement. “Not to mention,” one of them confided to me, “the fact that, ever since the pandemic, EU governments have themselves embraced state aid as if there is no tomorrow.”
The fourth grievance that Michel and von der Leyen laid at Xi’s door is that China was insufficiently supportive of the EU’s sanctions on Russia as part of a common front to end the Russian army’s brutality in Ukraine. Setting aside the question of the efficacy of sanctions, this charge merely exposes hypocrisy: Lambasting Putin’s bombardment of hospitals and targeting of Ukraine’s water, electricity, and food supply (as we all should) while staying silent as Israel does the same, and arguably much worse, in Gaza.
Of course, it is not hypocrisy that is causing Europe to hemorrhage capital and lose its current-account surplus. The EU’s inane handling of the inevitable euro crisis a decade ago saw to that. Record-breaking levels of austerity, coupled with massive money printing and a chronic failure to establish a banking and capital-markets union, ensured that for the next 13 years, Europe would have an unprecedented amount of money in its financial circuits and unprecedentedly low investment in the technologies of the future. This is why Europe is falling behind both the US and China. Responding with subordination to America and empty threats aimed at China is both sad and futile.
For the Project Syndicate site, please click here.
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Europe’s 15-Year Slump – Project Syndicate op-ed
The European Union’s supporters celebrate the survival of the euro, the fact that public debt is no longer the threat it was, and, crucially, that their mercantilist business model remains intact. But it has come at a steep price: Europe’s permanent stagnation and continuing fragmentation.
ATHENS – Europe is languishing in a long-term economic slump whose origins lay in Wall Street’s near-death experience in 2008. There have, of course, been subsequent spurts of growth (and hope), but these tend to fizzle out soon after they appear.
Given the European Union’s policy choices, it could not have been otherwise. These policies reflected the eurozone’s faulty design and guaranteed chronically low investment at precisely the time massive investments were necessary to shift Europe’s aging industrial base from dirty energy, chemicals, and the internal combustion engine to cloud capital and green technologies.
On both sides of the Atlantic, the policy response to the chain reaction triggered by the collapse of Lehman Brothers in 2008 was similar. The United States and the EU carried out history’s grandest and most cynical transfer of private losses from the books of quasi-criminal financiers onto public debt ledgers, combined with fiscal austerity to rein in burgeoning public debt. The result? A massive liquidity trap that increased public debt and led to the greatest disconnect ever between available liquidity and real capital investment.
The predictable long-term outcome was economic stagnation. In the event, the malaise was so deep and lasted so long that it poisoned politics in Europe and the US. But that’s where the similarities end and Europe’s growing disadvantage relative to the US begins, because, unlike the US, the eurozone lacked the federal institutions which, in times of crisis (like that of 1929 or 2008), can stabilize a monetary union and prevent it from falling into a lasting slump.
After 2008, the EU had two options for keeping its monetary union intact, only the first of which could avert the permanent slump. The first option was to federate de facto, even if not de jure, a strategy that would entail common debt, substantial federal-like taxes, and a five-year aggregate pan-European green investment plan.
To choose this option, however, Europe would have to ditch the neo-mercantilism central to the German and Dutch business models, which lay at the heart of the eurozone. One might have thought (as, admittedly, I did) that Europe’s elites would have considered the abandonment of neo-mercantilism a relatively small price to pay for avoiding a perma-slump.
But one would have been wrong. Europe’s most successful net exporters and their political agents cared far less for Europe’s dynamism than for maintaining their reliance on net exports sustained by the US trade deficit (a constant source of aggregate demand for their wares). They also ranked the importance of their net exports to China and the suppression of German wages well above the importance of giving Europe a chance to recover its elan.
The second option was to avoid the quasi-federal option by relying on massive austerity for the eurozone’s most depressed member states, accompanied by equally massive quantitative easing favoring the least depressed parts of the monetary union. This was the option that was adopted, with the cruel treatment of the eurozone’s most bankrupt member, Greece, intended to signal this choice to the other member states.
The result was that the euro was saved at the expense of a permanent stagnation in aggregate investment across Europe, along with deepening rifts between the EU’s north and south (with new east and west rifts developing, too). Meanwhile, the US is on a public investment spree that lures Europe’s industrial conglomerates stateside, thus deepening the EU’s investment gap. Unsurprisingly, the EU, despite its Green Deal pronouncements, cannot fund its own green transition, let alone Ukraine’s post-war recovery.
Today, the danger is not that Europe’s policymakers will double down with more fiscal austerity. Their preferred weapon of contraction nowadays is monetary policy. Having erred once in shunning a bold progressive monetary policy that would have averted the recent bout of inflation, they are now tightening too much and for too long. The result is that an already disjointed monetary union, on the verge of recession in the midst of stubborn inflation (despite the rapidly shrinking money supply), is falling behind China and the US.
The cause of all this is structural. Contractionary, and thus debilitating, austerity remains hard-wired into Europe’s current institutional framework – a fact that stops governments of all political shades from trying out different policy agendas. Europe’s unfinished architecture of integration prohibits experimentation with the kind of industrial policy the US is now pursuing (under the Inflation Reduction Act and the CHIPS and Science Act) or with other agendas.
Sure enough, the German government is departing from EU orthodoxy, by channeling vast public funds into aiding its floundering industrial model. But it does so at the cost of wrecking the single market and the commitment (more theoretical than actual) to a pan-European level playing field. Expect a backlash soon from EU member states that cannot match German subsidies, especially those that cannot protect their industries by devaluation.
EU cheerleaders celebrate the survival of the euro, the fact that public debt is no longer the threat it was, and, crucially, that their mercantilist business model remains intact. Deep down, they understand that they owe this small miracle to those who worked hard at the European Central Bank (despite the Bundesbank’s fierce opposition) to crank up the ECB’s printing presses and unleash torrents of euros to prevent a Greece-style outcome in Italy.
But it has come at a steep price: Europe’s permanent stagnation and continuing fragmentation. Europe’s monetary union remains disastrously incomplete, lacking the political and fiscal union necessary to make it work; worse, 15 years of malaise have deepened the impasse. We Europeans must either brace ourselves for secular decline, forced upon us by our problematic currency, or do something about it. A structural problem demands a political solution.
For the Project Syndicate site, please click here.
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