by D.J. Webb
The euro is part of a pan-European architecture that is keeping the peace in Europe, they say. I don’t think the European nations have any appetite for war, and such talk is either hysterical or too grounded in the views of people who lived through the Second World War, whose influence on politics today logically needs to start rapidly declining.
But to the extent that relations between states can always descend into hostility and war, possibly over a long period of increasingly unfriendly interaction, it is true to say that failure to co-operate can eventually (note the word “eventually”) lead to war. Economic policy is war by other means, and in this light it is important to note that the euro, far from keeping the peace, is accentuating geopolitical hostility on the continent. I don’t know if the next war will resemble previous wars – nuclear weapons may mean that trench warfare will never be required again, and nuclear weapons may keep an uneasy peace where more than one power has the ability to destroy others – but, if anything, the mania for international determination of domestic economic policies could well be increasing hostility towards Germany in some countries, a hostility that could increase the longer policies of austerity are enforced in the eurozone.
After all, German policies that are forcing Greek families to give up their children for economic reasons are tantamount to bombing Athens anyway. It is economic warfare. Let us not forget that creditors as well as debtors must share the risk for any loans, and forcing countries to take out loans, the bulk of which are used to bail out the banks in the creditor countries, merely increases the burden of the loans, while giving the debtor countries no way out. Put simply, Greece should have written off its debt to banks in the creditor nations a long time ago – and Germany, France, etc, should, had they seen fit to do so, have bailed out their own banks directly without imposing fresh debts on Greece. There shouldn’t be any bailouts, and if Greece cannot balance its budget, then it has the option of cutting expenditure or leaving the euro. But where there are bailouts, they should be devoted to assisting the country in distress, and in no case should a country take out fresh loans to cover debts to banks in creditor nations. The increasing proportion of Greek debt owed, not to private-sector banks, but to the European Union, the European Central Bank or the IMF illustrates the way in which private-sector debt, which can be repudiated, is being replaced by multilateral debt much harder to get out of without serious international consequences.
In the case of Spain, once again, in an ideal world, there would be no bailout of its banks, and the banks should simply fold, if necessary, allowing their assets to be purchased at a discount by new banking institutions, rebuilding the financial system from the ground up. However, the financial dislocations caused by the euro have already been created, and the southern eurozone governments may feel that Germany and the other countries that benefited from the euro should share the burden of any pain that follows. The logic of this is that the banks should be bailed out, but some mutualisation of the sovereign debts occurred is required if the same issues are not to recur constantly. The eurozone should either move promptly to that, or reinstate national currencies. In any case, the folding up of the euro is a good idea if countries are to regain control over their economic competitiveness.
Refusing to deal with the eurozone problems and allowing them to continue with no end in sight is clearly unacceptable. Germany ought to be told publicly by the leaders of the UK that the behaviour of Mrs Merkel on the European stage has been noted, and if a pan-European depression is occasioned by her actions or her failure to act, it will have diplomatic consequences. The UK should hold Germany responsible for any depression that is caused, and given the history of the twentieth century, it behoves Germany to bear in mind how easily a climate of geopolitical hostility can be stoked, leading in the extreme scenarios to war. The UK should indicate it will definitely leave the EU if a depression is caused by the failure to solve the euro problem. Germany could be expelled from NATO. Defence co-operation with France and other EU countries should end, and British troops should be withdrawn from German bases, where they currently serve the purpose of reducing German state expenditure and pumping British public money into the economies of the areas surrounding British military bases in Germany. In the worst-case scenarios, we should not guarantee to maintain free trade with Germany. We can always take our trade deficit elsewhere and allow other economies to take advantage of our failure to maintain a manufacturing industry.
Surely it is time for Britain to attempt to take the lead in Europe, by convening a conference to deal with the debt issues? Countries like Iceland, outside of the EU, can be included, and the principle should be that economic growth for all states should be facilitated, by long-term debt moratoriums and the writing off of a large proportion of the bonds of the debtor states, even if there is some impact on financial powerhouses such as the UK. The problem is that this result will be arrived at eventually anyway via a series of sovereign defaults, and so the bull should be taken by the horns, and an orderly plan to retire excessive debt agreed between all European states should be negotiated. All of Greece’s debts should be written off, as a debtor that clearly cannot afford to pay. Iceland’s “debts” to the UK and Holland should also be written off, as the country should not be forced to underwrite the private-sector debts of its failed banks. A large part of the debts of the Spanish banks should be written off too, possibly funded by Germany and France. Finally, an orderly plan to withdraw the euro should be devised, allowing southern Europe to regain competitiveness and reducing the competitiveness of Germany.
There is no easy solution to the problem of excessive debt, as vested interests stand to lose out from debt cancellation, but the alternative, permaslump, is unacceptable. Consequently, countries should share the burden of the adjustment and move to balance their books as the recovery takes place. Failure to do this, in line with the current policies of Mrs Merkel, should be seen for what it is: international aggression that threatens to drive the European countries to confrontation once again.