Europe's "machine from hell"

The Eurozone "machine from hell" is undermining European unity from Germany to Greece, democratic national politics clash with European economic necessity

Europe's "machine from hell"

The Eurozone "machine from hell" is undermining European unity from Germany to Greece, democratic national politics clash with European economic necessity

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'If the euro fails, Europe fails': thus spake Angela Merkel. Unfortunately, the euro is failing, but it is failing slowly. Even if Greece grexits, the Eurozone seems unlikely to fall apart in the near future, although there is still a chance that it will. There is a much higher chance that it will grind along like a badly-designed Kazakh tractor, producing slower growth, fewer jobs and more human suffering than the same countries would have experienced without monetary union. However, the misery will be unevenly distributed between debtor and creditor countries, struggling south and still prospering north.

These different national experiences will be reflected through national elections, creating more tensions of the kind we have already seen between Germany and Greece. Eventually, something will give, but that process may take a long time. 'There is a great deal of ruin in a nation', said Adam Smith. Given the extraordinary achievements of the 70 years since 1945, and the memories and hopes still invested in the European project, there is a lot of ruin still left in our continent.

I recently participated in an event in Frankfurt attended by representatives of leading European investors. A multiple-choice instant poll was taken, offering a number of scenarios for how the Eurozone would look in five years time, and asking which we found most probable. Nearly half those present opted, as I did, for 'Japan in the 1990s'. 20% voted for 'what Eurozone?' 18% went for 'the UK after Thatcher', by which they presumably meant a leaner, meaner economy, with the policies of austerity and structural reform producing growth, but also dislocation and inequality. The catch is that even in this last, 'best' case, the inequality would not be within one country, such as Britain, but unevenly distributed between different countries. Germans and a few other North European nations would go on taking most of the gain, others the pain.

To say this is to endorse an economic analysis that mainstream German politicians and economists will fiercely dispute. Austerity and structural reform are the one true way to salvation, they insist. As Merkel put it in 2013: 'what we have done, everyone else can do'. There are at least three problems with this. First, as every wise doctor knows, even the theoretically right medicine can be disastrous if administered in too strong a dose to a weakened patient. Second, Greeks, Italians and French are not Germans. Their economies certainly need structural reforms, which have, for example, boosted exports from Spain, but their societies and companies simply do not respond in the same way. Third, even if the whole Eurozone becomes one giant German-style Exportweltmeister, who will be the consumer? Some of the demand must come from inside the Eurozone, and especially from richer countries like Germany. If everyone else is to behave more like Germany, then Germany must behave a bit less like Germany. But Germany is not prepared to do that.

In the long term, Germany will suffer from the consequences, but not in the short term. Walk around most German cities and the feeling is: Crisis? What crisis? While Germany has had to bail out countries like Greece, much of that money went straight back to imprudent lenders, including German banks. Meanwhile, German export business has benefited greatly from the Eurozone.

In Frankfurt, the misery of Athens seems very far away. Reflecting on austerity policies in southern Europe, one German banker said 'the problem with Greece is that they never tried'. This of a country where previously middle-class people are reduced to attending soup kitchens, one in every two young people is unemployed and, according to an estimate by the Financial Times' Martin Wolf, since 2008 'spending by Greeks on goods and services has in fact fallen by at least 40%'.

The structural problem here is that the monetary area is European but the democratic politics are still national. It is not that there is nothing that could be done, if the politics allowed it. Everyone admits in private that Greece cannot repay its mountain of debt, so let Berlin parlay explicit debt forgiveness for continued meaningful reform by the new Greek government. Or let German wages and prices rise, thus helping to rebalance the Eurozone internally. Or agree on the kind of fiscal transfers from richer states to poorer ones that you have inside a proper federal union such as the United States, where nobody expects Alabama to perform like Silicon Valley any time soon. But in creating a monetary union without a fiscal or political one, Europeans put the cart before the horse – and now the horse is not ready to get in front of the cart.

National democracy therefore stands in a growing tension with European integration. Some leaders of the European institutions in Brussels see this. France's European Commissioner, Pierre Moscovici, talks of 'the Commission of the last chance'. But there is not much they can do about it, because power mainly lies with democratically elected national governments.

Let me be clear: given the choice between democracy and a paternalistic, top-down, Euro-Leninist version of European integration, I will choose democracy every time. The Finnish vice president of the European commission, Jyrki Katainen, responded to Syriza's election victory by saying 'we don't change policies depending on elections'. Oh yes you bloody well do. It's called democracy and it's Europe's greatest political invention. The trouble is that the structural problems of the Eurozone require a trans-national European democratic solidarity of fellow-citizens which does not exist between different nationalities in the Eurozone, and is not in prospect any time soon.

And so we will struggle on, torn between national politics and European policies, while the monetary union that was meant to unite Europe slowly pulls it apart. But the torture will be slow. In the countries that are suffering most from this 'machine from hell', as one senior German official has described the Eurozone, there is still a passionate determination to stay 'in Europe'. For all its radicalism, Syriza has shown a remarkable readiness to compromise, so as to stay in Europe. I suspect the same would be true of Podemos in Spain.

Domestically, these countries still have the safety net provided even by a much reduced welfare state. For unemployed young people, a further buffer is provided by the fact that their baby boomer parents still have a place for them to live, and some life savings to help them out – aka the Bank of Mama and Papa. The labour mobility guaranteed by the EU also provides an important safety valve, as young Spaniards with two university degrees come to work as waiters in London or Berlin. However, that migration in turn fuels the anti-EU rhetoric of parties like UKIP and Alternative für Deutschland, which hitch their Euroscepticism to genuine popular fears about immigration. And gradually these material and cultural reserves will be exhausted.

What then? My heart does not like what my head is telling me. But it is still up to us, and there is still time to reverse the trend. Can Europe's 89ers - the generation of Europeans born around and after 1989 – generate the political imagination and will that our current politics are failing to produce?

Timothy Garton Ash is Professor of European Studies at Oxford University, where he currently leads the freespeechdebate.com project, and a Senior Fellow at the Hoover Institution, Stanford University. His latest book is Facts are Subversive: Political Writing from a Decade Without a Name.