Europe’s slippery slopes: a book review.

There are never enough books to satisfy the reading public’s appetite for ideas about how to overcome Europe’s travails. Our three authors provide us with plenty: all focus in different ways on the two key questions of nationality, and Europe’s relations to the rest of the world. Brendan Simms’ approach is to argue that the major states of Europe, in this case the United Kingdom, have to fit into the European fabric in ways compatible with their historical roots. Giles Merritt argues, from a seemingly different perspective that “whatever Eurosceptics may argue, the answer is not a resurgence of European nation states’ sovereignty”. Joseph Stiglitz argues that the European project is too important to be destroyed by the Euro: the Euro is a means to an end which is to deliver peace and prosperity to the peoples of Europe.

In the following sections, I sketch the author’s main ideas, compare and contrast them, and provide my own comments.

Britain: not an island but a continental story.

In Britain’s Europe: A Thousand Years of Conflict and Cooperation (London, Allen Lane, 2016), Brendan Simms, argues that the history of England, later Britain, is primarily a continental story. For over a millennia, England, then Britain’s destiny has been determined by relations with the rest of Europe, rather than with the wider world. In effect, his book should be read alongside his Europe: The Struggle for Supremacy: 1453 to the Present, Allen Lane, 2013. Simms argued there that Germany has for long been the geopolitical and ideological centre of the struggle about the form Europe should take either as a Universal Monarchy, as a recognizable system of states, or in the hybrid European Union of today. His approach in both books is to look at the historical roots of two of the major countries which make up Europe.

In A Thousand Years, he focuses on UK foreign policy and constitutional design, both stamped by the European connection. The two strands came together first in the ninth century, under Alfred the Great, the creator of the first European nation state in response to the threats to England from the Vikings. Over the coming millennia, through the Norman invasion, Magna Carta, the Stuart monarchy and most importantly, the 1688 Glorious Revolution, which laid the foundations for Britain’s constitutional monarchy, the executive power of the state has been constrained by parliament and courts.

England, writes Simms was unique in that the liberty of the subject came prior to that of the King. Parliament was not regional but national and early on acquired the tax, war making and legislative powers together with the executive in what has become in effect a constitutional monarchy. The political union of the islands came largely in response to external challenges to the English state: Westminster in 1494 asserted primacy over the Irish parliament in Dublin, in view of previous attempts to use Ireland as a military base to seize power in London; in 1536, as part of his break with the Papacy (the first Brexit), Henry VIII intensified the Crown’s sovereignty over Wales; in 1603, the Scottish dynasty of the Stuarts united their throne with the English, a union   under the crown confirmed in 1707. Ireland, after a brief period of parliamentary independence after 1776, and the American war of Independence, was then reincorporated into the Union in 1801, in reaction to the attempt by the French revolution to land forces there. Over a century later, Wilhelminian Germany backed the anti British uprising in Dublin, while two Irish divisions were fighting under the British flag in Flanders.

Up to the break with Rome in 1529, England formed part of Christendom, though the monarchy contested, as was the case elsewhere in Europe, the powers of the papacy to nominate bishops to vacant sees. The emergence of a new foreign policy strategy became visible in the course of the sixteenth century, with a focus on Germany and the Low Countries, and a concern for the “liberties of Europe” associated with the defence of Protestantism on the continent and parliamentary liberties in England. By the end of the seventeenth century, a familiar pattern emerged, Simms writes, whereby Whigs and Tories, the two main political formations to emerge from the civil war of the 1640s, developed opposing views on foreign policy: Europhile Whigs, Simms writes, were committed to European intervention and to Euroskepticism; Tories preferred to concentrate on maritime and commercial expansion, rather than too much engagement in the affairs of the continent. In the course of the eighteenth century, these policies gave way to an absolute priority to preventing the growth of a hegemonic power on the continent. That was the inspiration behind the Napoleonic wars, and the declaration of war against the Kaiser’s Germany in 1914. Parliament and people in August of that year went to war to uphold the “liberties of Europe” in response to Germany’s invasion of Belgium: they were not “sleepwalking” into the conflict( a reference to the historian Christopher Clarke’s The Sleepwalkers: How Europe Went to War in 1914, Harper Collins, 2013.)

The first half of the twentieth century was dominated by Germany, and its two bids for European dominance. At great cost to herself, Britain, writes Simms, “outperformed the Reich in every aspect of warfare”. The great challenge though came after 1945, when the tactic for European unity altered from methods of hostile takeover, to one of integration via negotiations. For a moment under Tony Blair’s premiership, there was a brief prospect that “Europe was to become an extension of Britain and a force multiplier for British Grand Strategy”, but that idea foundered in the politics surrounding the build up to the Iraq war of 2003.(my take on this was that Chancellor Schroeder, in declaring Germany would never back intervention, seized the leadership of Europe for the first time from France by playing the anti-American card. He thereby made war more likely; broke a nascent European alliance to restrain the US, and indicated that Germany could claim freedom of action, or be dominant in the EU—a point which Simms correctly makes, though not in the context of the Iraq war). After 2003, the split in the Atlantic alliance between Washington and the EU opened wider.

On the present condition of Europe, and the UK’s relationship to it, Simms makes two points. One is that the fears of UK decline have been greatly exaggerated: the UK, he writes, is the only major state not to have been broken by 1917 (attrition in the trenches, the Russian revolution, and US entry to the war), and by 1940 (defeat,occupation, collaboration). Given the resilience of the British constitutional model over centuries, the strong sense of national identity, and the strength of Anglo-British soft power, there was and is no chance at all of the British electorate voting in support of pooling sovereignty into a single European state—the Ted Heath proposition that David Cameron very foolishly tried to put to the test of referendum on June 23, 2016.

The second is that a shambolic Brexit would have a catastrophic effect on the rest of the continent. The impact of the UK leaving is that either Germany regains its freedom of action as an independent state, or it stays in the European Union, and dominates it. What is needed is complete unification following a Europe wide referendum. “This would then necessitate a revised European Confederation between the UK and the new Eurozone state”. He quotes the former Commission President, Jacques Delors, who remarked in December 2012 that “if the British cannot support the trend towards more integration in Europe, we can nonetheless remain friends, but on a different basis. I could imagine a form such as a European economic area of a free trade agreement”(p.239).

Europe on a slippery slope.

In Europe’s Troubled Future, Oxford University Press, 2016, Giles Merritt writes that few of the solutions required to get Europe out of its difficulties are national. “The central theme (of the book) is that no single European nation is capable on its own of defending its interests in today’s world..”. The only available mechanism is to “unify national governments into a stronger and more cohesive force”. Merritt is a former Financial Times journalist, a founder of the Brussels-based Friends of Europe, and a Brussels insider, who counts among his friends, acquaintances and contacts nearly everyone who moves and shakes things in the EU.

The book is dedicated to Susan Strange, “mother and mentor”, inconoclast extraordinaire and in her time one of the leading proponents of a combined approach to the study of international relations, bringing together markets, politics and corporate strategies. Strange was the prime influence that led me to teach for near forty years at INSEAD, the business school in Fontainebleau. I came to encapsulate her thesis in the slogan: “markets, politics and business dance together for ever”, whereby I mean that any analysis of international affairs that takes only one or two of these perspectives, and not all three as interdependent among them, suffers from professional myopia. I can still hear a booming voice from the back of the hall in which a Nobel prize winner was talking to us about exchange rates, as if his subject was purely economic, stating that the eminent gentleman was speaking nonsense on stilts, and that the decision to which he had just referred on US exchange and interest rate policy, had been taken not in the Fed but in the Office of National Security. Stony silence. Much coughing in the auditorium, as Strange went on to argue that exchange and interest rate decisions were primarily political in nature, with powerful economic consequences and corporate implications.

Merritt starts on the sound principle that if you don’t know what’s wrong, there is no chance of fixing the problems. He does so by exploding ten myths: Europe is not overcrowded, but needs to develop its infrastructure, notably in its neglected regions; Europe is not so much rich as getting poorer; Europe is not technically advanced, but lagging further and further behind; it is not resilient, but has failed to bounce back from a very prolonged recession; high rates of un- and underemployment is not because jobs are haemorrhaging to Asia, but because legislation is not jobs friendly; Europe is not losing out to immigrants, so much as desperately needs them to inject fresh youth into an ageing continent; Europe’s voice is not heard around the world, because it does not speak with one voice; US and Europe no longer view security in the same way; the EU is far from becoming a superstate, threatening national sovereignty; rather it is a dysfunctional, poorly organised, unimaginative and risk averse bureaucracy, facing waning public support. The European Commission is not on the way to becoming the EU’s government, so much as sliding into a role as the EU’s secretariat. In short, things ain’t what they seem, and definitely not as they are painted by Eurosceptics.

Extrapolation of Europe’s performance from 1980 to 2010 through to 2050 highlights Europe’s declining share of world wealth, unless major changes occur. They will not, Merritt states, unless Europeans think of themselves collectively, which they do not. Yet Europe has a chance of taking centre stage in a world that is becoming ever more interdependent, and that needs consensus-based global governance mechanisms, similar to those developed in the EU. But it is not doing so, because its internal squabbles take up so much political energy and time. The larger member states do not want to hand over their privileges and positions, while the smaller member states remain highly suspicious of too much power ending up in the hands of unelected officials. What is needed, Merritt writes in a drum beat that echoes through the book, is unity of purpose: “We Europeans will be unable to confront our challenges if we retreat into outdated nationalistic rivalries…”

Another theme taken up by Merritt is that Europeans must see their situation in the light of major changes occurring in the world. He choses to emphasise two: the rapid development of Asia, and the messy evidence of a rising Africa. The answer to both is to harness the combined clout of the EU to negotiate as one. But he adds two important provisos: the EU, he rightly states, has not woken up to Africa’s transformation, largely boosted by Chinese and Indian inward investment, as well as by, it should be added, Prime Minister Brown’s effective policy of debt forgiveness. Nor should Europeans see Asia‘s development in terms of the rise and fall of powers, so much as the emergence of a global economy.

In this, he touches on a debate, which has resurfaced in the light of renewed talk about US decline, to the effect that without an overall hegemon in the world system, we are moving to a world where no one power dominates, but many compete. According to this belief, we are heading rapidly backwards to a world of interstate clashes, where states pursue their national interests ruthlessly. That is how Africans tend to see the EU, as Merritt rightly observes, making “partnership” agreements with individual states, the better to divide and rule, while pontificating about democracy and human rights. I will expand in my comments on what I regard as a fundamental misalignment of European realism and idealism in international affairs.

Much of the second part of Merritt’s book is devoted to Europe’s present impasse, which he correctly identifies as fundamentally political. “Brussels”, he writes, “lacks legitimacy, credibility and even genuine power” to get things done; the Lisbon Treaty he describes as a “barely readable fudge”, which falls far short of the federal Europe which our author considers vital. How to exit from Europe’s labyrinth? Merritt bubbles with ideas, but knows Europe too well to imagine that stating them is enough. The EU has to be streamlined, he says, but how to adapt the ramshackle structure? The European parliament has grabbed powers , but how to acquire popular trust? It would be good to create a European Senate, representing the member states, but how to get France and Germany to agree? Europe’s soft power can only do so much, but how can Europeans be brought to take defence seriously? He cites Commission President Juncker’s definition of the European problem: “We all know what to do . What we don’ t know is how to be re-elected if we do”. What we need to do, Merritt agrees with Juncker, is to create a federal European polity, but the most difficult task is to “persuade public opinion that we must rethink our comfortable and cherished assumptions about Europe’s privileged place in the world” p.256.

The Euro as threat to the future of Europe.

Europe, writes Nobel prize winner Stiglitz, need not be sacrificed on the cross of the Euro. In the absence of reform, far better he writes, an amicable divorce, than the present formula of muddling through. The European project, he writes, is too important to be destroyed by the Euro.

At the root of Europe’s travails is neoliberalism, which he essentially describes as the assumption that markets will sort things out in a satisfactory way in the longer run. This is the nub of his argument: economic ideology rather than “nationalism” is the target for his critique. Nationalism is of course present in his analysis, but it appears as evidenced through the lack of agreement about what should be done, and the lack of agreement is due to a lack of trust. Europe, he writes, is diverse: given that diversity, “there needs to be an array of economic institutions than can help those nations for which the policies are not well suited”. “Political cohesion, he goes on, was not strong enough to create the economic institutions that might give the Euro a chance to succeed”p.9. “Today there is no real sense of solidarity…indeed, just as the years since the onset of the crisis have led to economic divergence among the member states, they have also led to a divergence in beliefs”.p 22.

If Euroland is to prosper, and the EU project, put back on track, what is needed is to organise solidarity between the member states. That involves a common bank deposit scheme , the issue of a Eurobond, underwritten by all member states, and a fiscal countercyclical tool. Failing that, the powers that be should organize a carefully designed exit from the Euro. Such an exit would be costly, but so will muddling through. Indeed, it is quite clear that Stiglitz considers the costs of muddling through with the Euro system as is much higher than moving to an orderly exit. There is simply not enough flexibility in the Eurozone, he writes, to account for the diverse conditions facing national governments around the zone: “The Euro, he writes, is a means to an end, not an end in itself”.

Close economic integration can be achieved without a single currency. “Had there been a recognition of the limitations of markets, perhaps the founders of the Euro would have been more cautious in its creation”p 46. But that was not to be, he argues, depite the abundant literature on the very demanding conditions required if countries are to successfully share a single currency. These were first outlined in a seminal article by the Canadian economist, Robert Mundell, whom Stiglitz cites ( Robert A. Mundell, (1961). “A Theory of Optimum Currency Areas”, American Economic Review,  51 (4): 657–665. ). Mundell proposed four criteria for a successful currency union :

  1. Labour mobility across the region, facilitated by the lack of cultural barriers, and by institutional arrangements such as pension transferability, passports, or worker rights. Thus, if unemployment rises in one country, workers can migrate easily to where jobs are available.
  2. Capital mobility, price and wage flexibility across the region, so that market forces of supply and demand distribute money and goods to where they are needed. In practice this does not work perfectly as there is no true wage flexibility.
  3. A risk sharing system such as an automatic fiscal transfer mechanism to redistribute money to areas/sectors which have been adversely affected when there is a downturn.
  4. Participant countries have similar business cycles. Should countries in a currency union have idiosyncratic business cycles, then optimal monetary policy may diverge and union participants may be made worse off under a joint central bank.

Solidarity, understood as the sharing of a common destiny, is one further condition added in the ensuing discussions in academe. There was, and is, little solidarity in the creation and workings of the Euro, writes Stiglitz. The assumption in the early 1990s, was that market forces would lead to convergence; this did not happen. What is more, Germany insisted on a no-bail out clause in the Maastricht Treaty, pushed for the “convergence criteria”, which placed a break on member state’s deficits and debts, and once the Greek crisis broke in 2010, opposed the “elimination of place-based debt by creating Eurobonds” p.136. Thereafter, Germany has insisted that other member states should do what German did, and does: hold down consumption and maximise exports. The result is that adjustment to imbalances in southern Europe has occurred not by currency realignments, as would happen in a multi-currency system, nor by maintenance of aggregate demand in the Eurozone, but through wage depression, involving sky high unemployment, in the southern member states. “Like medieval bloodletters, Germany and its associates in the Eurozone argue to stay the course”p.232.

Stiglitz is particularly critical of the Eurozone’s handling of Greece, and of the countries on the Eurozone periphery. When the Troika (IMF, Commission, ECB) leapt into action at the time that it became clear that Greece had fiddled its books, the Troïka’s principle objective was not to bail out the southern countries, but to bail out the French and German banks which had lent to them. The debts incurred on southern country government balance sheets, as local banks bought local government paper, were to be repaid, while the governments cut back on expenditures, and forced down wages through the attrition of rising unemployment. Bail out, in other words, for depositors of French and German banks, and work out for the working populations of peripheral member states. He tells the story of how, as part of “structural reforms” imposed on Greece, the Troika (I suppose the Commission among them) pushed for an extension of the shelf life allowed for milk products sold in Greece in order to facilitate the export of northern European milk products, and undercut the fresh milk services being offered by Greek producers p.218. Structural reform to promote northern exports to Greece, rather than to promote Greek exports to northern Europe.

In Part IV of his book, Stiglitz charts a way forward, and sketches what would have to be done for the Eurozone to be politically viable: the creation of a banking union; mutualisation of debt; a common framework for fiscal actions to ensure stability; measures to ensure structural realignment( discouragement of large trade surpluses; boost demand on surplus countries; reassess the “convergence criteria”), and change the ECB’s mandate to one which balances price stability with economic growth.

If this package is not on the cards, then better to arrange an amicable divorce involving Gerxit (German exit from the Euro”) , a sharp revaluation of the German currency, and the resulting trend to restore balance on national current accounts. “My hope, he writes, is that the (Brexit) shock will set off waves on both sides of the channel that will lead to this reformed European Union””. p.359.

Post-truth in the era of post-modernism.

In the aftermath of the June 23 vote in the UK favouring Brexit, followed by the November electoral victory of President elect Trump (with a plurality of seats in the Electoral College, but a minority of votes), much play has been made of the idea of “post-truth”: the political culture in which we emote rather than reason; make sweeping statements in a voice drenched in conviction, but only distantly and partially related to facts and nuances. What matters is not so much falsification by argument of the opponent’s position, as identification of the supposed underlying motive. We are here in the realm of post-modernist invention of reality, arguably best represented by the 120 words sound bite on a Twitter account.

If we situate the culture of post-truth in the context of post-modernism, the phenomenon is at least a century old. A long list of philosophers-Heidegger, Foucault or Rorty-fall within its pantheon. Broadly speaking, its proponents contest the existence of objective reality and absolute truth, preferring to locate knowledge and truth as the product of unique historical circumstances, and molded by discourses or narratives about reality. These narratives are constructed, and self referential such that any particular discourse is true in itself. Truths are relative, and have to be deconstructed in terms of their presuppositions, ideological underpinnings, hierarchical values, and frames of reference. One contrasts with another, and is neither true nor false.

The ubiquity of this approach in modern political discourse, in our case, in Europe is only too patent. No article or book goes by without some reference or other to the language of narrative. Here is former President Giscard d’Estaing , addressing the Constitutional Affairs Committee in the European Parliament, on 17th July 2007, about the Lisbon Treaty-the unreadable Treaty in Merritt’s words. This was the reworded document of the Constitutional Treaty, turned down by the French electorate in referendum by 55 to 45%, and by the Dutch in their referendum, also in 2005, of 61 to 39%. “In terms of content, the proposals remain largely unchanged, they are simply presented in a different way… The reason is that the new text could not look too much like the constitutional treaty.” We are in the realm of Schein, not Sein.

Our authors do not stoop to such folly, a folly which assumes that voters are stupid, and that political leaders manipulate to achieve whatever outcomes they want on the grounds that they know best. Their books on the European situation are far from post-modern claptrap; none trade in the culture of “post-truth”. They are though dealing with the consequences, and two in particular: the Lisbon Treaty and the Euro. The Lisbon Treaty was presented to the public as business as usual, but used by insiders to advance the project towards its federal endpoint.

Let me clarify: there is much to be said for a federal European polity, but the last thing that can bring it about is to try to smuggle it in through subterfuge, or as Susan Strange used to argue, by playing grandmother’s footsteps with sovereign states. The sovereign member states cast deep roots in the loyalties of their peoples, loyalties which are overwhelmingly national or local -as indicated by the Commission’s own polling entity, Eurobarometre since 1973. At the most, were the present European inter-state polity to become a federal entity, with supremacy powers vested in its key institutions, a Europe wide majority of 80% would be a minimal requirement. As an example, the Basque National Party won 1.6% of the total votes cast in the March 1979 general election to the Congress of Deputies in post-Franco Spain’s first general elections under the new Constitution: the pro independence Basque parties were still winning majorities in the Basque country in the 2012 elections. Simply put, there will be no European construction without political consent. Not just of the élites, but of the vast majority of voters. A federal endgame for Europe is very high political stakes indeed, a point which Merritt acknowledges: There is, he writes, “a risk of creating a pan-European system that is practically so volatile it might greatly exacerbate Europe’s difficulties”.p.253. In my view, not a risk, but a certainty.

Creating the Euro was an example of how high stakes major European initiatives are. The background was that the French government felt obliged in March 1983 to take its orders on growth, exchange rates, interests rates and fiscal policy from Germany. Italy backed the creation of a European currency, not least to escape entrenchment in a polity where the Central Bank governor in 1979 had been jailed for two days by a Mafiosi lawyer, Sindona. Negotiations for a single currency accelerated over the years 1987 to 1992, while Germany reunified, the USSR imploded, and France in particular led the coalition to cement Germany into a united Europe, notably through the creation of the Euro. The economists, pace Stiglitz, were called in like court jesters to decorate the rationale, which was political from first to last. Simply, France and Italy would not accept dictation of national policy by the Bundesbank; instead, the agreement was to fold France, Italy and the other member states into a European Central Bank where powers were shared.

The deal was a major political achievement: but it left many matters undecided. As French political analysts say, le non-dit was almost more important than what was said. The non-dit, or more accurately, the barely whispered preference, in France was for a European Transferunion, with a large fiscal base: the Germans, more voluble, made clear that they would only accept the single currency, if it was flanked by political union, ie a federal construction, and if the member states realized that the no bail out clause in the Maastricht Treaty was for real. Positions have not budged since the early 1990s.

Comparisons, contrasts, comments.

Where does this leave our authors? Their discussion ranges over many themes. I pick four of them, and then will provide my own comments.

First ideas matter. It is hardly surprising that our Nobel prize winner, Stiglitz, gives pride of place to ideas. He makes two seemingly contradictory points in that regard: one is that the culprit for Europe’s present travails is neo-liberalism, the Panglossian ideology that maintains that if markets are left to themselves, everything will turn out for the best in the best of all possible worlds. The other is that in a currency union, it is not only economic structures that have to converge; ideas about policy do too. On closer inspection, the two statements are not contradictory, but there is something to add. The addition is that the disagreements and mistrust present at the creation of the Euro in the decade of the 1990s left no other option available for the EU than to operate as if neo-liberal ideas had triumphed. They triumphed in no Euroland member state, definitely not in statist France, and definitely not in liberal corporatist Germany. Which is not to say that Paris and Berlin agree about what to do. As I have pointed out, France aspires to a European Keynesianism; Germany’s voters do not want to be liable to bail out other member state debts or banks. The result is that Euroland is more neo-liberal than the Pope is Catholic, even though national arrangements are far removed from Panglossian economics.

Second, nations matter. Merritt is the champion here. The fundamental reason why Europe is on its slippery slope, Merritt hammers home in different formulations again and again, is that the EU is increasingly run by national governments that in their way are bent on resisting greater Euro-federalism. “If Europe wants to make its voice heard in the world, political leaders across the EU will have to haul down their national flags and be mandated by a European electorate, with all the turmoil that implies”p.108. Yet he agrees that the greatest task is to persuade national electorates. Simms, with his historical perspective, reminds us that the persuasion has to go with the grain of each nation’s collective memory. In the case of the UK, he writes there is no prospect at all of the general public voting for a supranational Europe-a pity that poor, innocent David Cameron had not bothered to consider this perspective when he triggered his referendum on precisely that issue.

By contrast to the major continental states, which were dragged or dragged themselves through the sewers of war, revolution, and totalitarianism in the first half of the twentieth century, there is a possibility that a majority will be available to forge a new federal state, writes Simms, to give political ballast to the single currency. I doubt it. But then, I’m an academic who has made a living from doubt.

Third, know thyself. Again Merritt and Simms take the lead here. Merritt opens with his ten points in illustration of the fact that Europe is not what it thinks . In this, he is in a long line of authors who maintain that Europe is dwarfed. Its representation of itself, he argues, is out of date. Although he does not elaborate on this history, European states were dwarfed in 1917 with the entry of the US to the First World War; again in 1941, with Hitler’s war on the Soviet Union, and Japan’s on the United States; during the cold war between the two “superpowers”, and—Merritt’s particular emphasis–after 1990, with the dynamic transition of China out of Maoism to embrace an open door to global markets and to western technology. The worst thing to do, Merritt maintains, is for European states to cleave to their histories. They have to break from them to make the high risk leap to union.

Simms suggests that this is very difficult to do. For Simms, Germany has it easiest: it has always been the geopolitical and ideological fulcrum of Europe, and its Basic Law of 1949 comforts the idea of Germany’s contribution to a larger European peace system. Simms, though, has not done for France, what he has done in his two books about Germany and England/Britain. If he did do so, he would discover a predominant pedigree of France as forged in the struggle against Hapsburg, then Wilhelminian, and National Socialist Germany. Only in the last case, did Vichy agree to submerge French identity with German. This does not bid well for Simms’ advocacy of the need to create a new European superstate in support of the single currency. And Marine Le Pen, now placing herself full square as the true representative of France’s revolutionary tradition, knows it. French pro Europeans have the uncomfortable task of having to concur, but not submit to Germany.   Given the present political climate, Giscard-type pretenses won’t do.

Fourth, power politics is back. In fact, it was never absent. It was not concealed, but much attenuated by the post-1945 Attlee government’s presence at the creation, as junior partner to the United States, of the plethora of multinational organisations, ranging from the Council of Europe, through the OEEC, GATT and NATO, to the United Nations and the concept of collective security. In 1950, the French government then launched its own multinational initiative, the Coal and Steel Community, on clearly supranational grounds. Through a complex history, the Lisbon Treaty and the Euro are in direct descent. But the complex history has from the start traced the reservations between the two major protagonists, Germany and France: until 1990, German governments were extremely careful not to merge westwards at the expense of the constitutional commitment to reunification; France after 1968, and the failure of President de Gaulle’s foreign policies, modified his idea of a Europe of the states to embrace Germany westwards, without diluting French sovereignty, too much. The main vehicle for this was the Euro. The idea was to contain German primacy by depriving Germany of its cherished national currency. The plan has failed. In 2010, Chancellor Merkel stated in no uncertain terms that the Euro had to be on German terms. As Simms rightly points out, Germany faces two options: one is to be the hegemon in the EU; the other is to regain independence. The power struggle between France and Germany has not been settled. It has to be settled if Merritt’s European project is to have a chance to prosper. As matters stand now, the likelihood of the struggle being settled amicably, as Stiglitz hopes, is small, but not impossible.

My comments.

Stiglitz ends his stimulating book on a prayer, to the effect that Brexit could offer an opportunity for a fundamental rethink of the EU project. Merritt clearly agrees, as he calls for some introspection, involving a no-holds barred assessment of what has gone wrong. And a lot has gone wrong. Simms interestingly is the most optimistic, in that he suggests that a Euroland deal is feasible: the French initiative of 1950 was launched to deal with a specifically continental political problem of how to avoid repeat of the disaster of the past fifty years. Though the United Kingdom was a participant, in fact a leading participant, in both wars, he considers the UK a special case, in that its constitutional monarchy emerged unscathed from the drama. I am not so sure. The Heath government had the UK join the EU as the prime supporter of a supranational Europe: Heath and Blair were the two proponents of using the European foundation as a launch pad for the UK’s global policies. Both failed. The June 23 2016 vote to Leave by 52/48%, shows up a deeply divided country, where the old loyalties to the union are no longer anywhere near as intense as they were.

Nor is there much sign of statesmanlike rethinking on the continent of what has gone wrong. Rather, the propensity has been to blame opponents, both internal and external. Internally, as the supporters of a federal endgame ploughed ahead after the Lisbon Treaty and the Euroland crash of 2010, there was and is a temptation to see the rise of “populists” as evidence that they had finally succeeded in dragging the nationalist beast out of its lair. Their duty was and is, from their perspective, to soldier on in the name of a higher good, the longer term peace and prosperity of Europe. Their sentiments are laudable, but their reasoning is flawed. By sticking to the status quo, the policy in Stiglitz words, of muddling through, the proponents of a federal endgame are highly vulnerable to the accusation that they are sacrificing the peoples of Europe to their project.

The problem is not so much a lack of mental flexibility, as a freeze in Franco-German relations since the outbreak of the European depression in 2010. And the reason that there is a freeze is because the battle between France and Germany is still underway. Like the first world war, but fortunately over economic policy, and not in the trenches, the stand-off looks from afar as if nothing is moving. Positions are dug in: no bail out on one side; European “governance” on the other. In fact, though, the stand-off has cost a high rate of attrition, not in the death counts of Flander’s trenches, so much as in the inequalities, which Stiglitz rightly says have been promoted by clinging to the status quo. Among the chief of these inequalities is the sky high unemployment in southern Europe, and the low unemployment in northern Europe. Northern Europe, Germany and The Netherlands in particular, run a huge trade surplus with southern Europe. But southern Europe, in effect led by France, has one key card to play: Germany and The Netherlands are accumulating huge credits in the ECB’s TARGET2 mechanism (surprisingly unmentioned by our authors) that are unlikely ever to be repaid. As Keynes pointed out, if you wish to get into debt, go in deep. Your debt then becomes the creditors’ problem.

So the equation for the future is as follows: how long the southern countries’ policy of clinging to the Euro can be maintained may be gauged by the proxy indicator of unemployment; how long German exporters can believe that they are not giving products away for free depends on how much the Bundesbank officials in the ECB are prepared to be complicit in ECB fudge. ECB fudge involves in effect engaging in bail out, against the Maastricht Treaty. The fudge is called “quantitative easing’”. If ever the fudge should get into the public domain, the bets are off on the EU’s future. Given how close Italian and French elections are, we are dealing in effect with an unstable situation, to put it mildly.

Externally, the EU is, as Merritt rightly points out, a non starter in geopolitical terms. Putin knows this. Only France and Britain have some military clout, but as the 2011 Libyan affair revealed, not much. Neither France nor the UK have statesman, but they do have lots of politicians, and their politicians are preoccupied with re-election, for which the tried and tested recipe is the distribution of “benefits” in order to ensure as permanent vote banks of dependent voters as possible. Meanwhile, infrastructure investment is curtailed, not to say investment in armies, navies and airforces. As for Berlin, the German mantra, despite a presence in Iraq and Afghanistan, is Nie Wieder (never again is war to emerge from German soil, or indeed to engulf Germany), expressed in minimalist defence investment, and a strong propensity to forgive Russia its seizure of the Crimea. Between confrontation with Russia, standing up for European and international law, and the prospect of doing business with a Russia which is alongside Norway Germany’s prime source of natural gas, Germanys knee-jerk reaction is to go for accommodation. The UK and the US were the powers that pushed for financial embargo on Russian banks. Now that “Brexit is Brexit” and Trump is attracted to Putin, it looks as if Germany’s knee jerk propensity will be more than ever difficult for Mrs Merkel to resist.

Nor is the EU well placed to deal with Turkey and China. When Erdogan was first elected Prime Minister of Turkey, naïve MEPs dreamed that a de facto member of the Moslem Brotherhood like Erdogan would demonstrate that Islam and democracy were compatible. They are of course in the narrow sense that the mullahs have demonstrated in Iran. The peasantry votes tradition; the mullahs gratefully bus them in to Teheran on a Friday to provide the crowds to listen to the Grand Ayatollah’s sermon. Erdogan has recently legislated for the age of marriage consent for young women to be lowered to 12. Mohammed’s favourite wife was eight years old. So he has four more years to go before full Sharia applies.

After publication of my book with Pearson’s in 2010 on doing business in China, I was kindly invited to participate in the EU-China academic debates. My colleagues gave learned papers on human rights, environmental problems, and political freedoms. I pointed out that as far as I could gauge, no one of consequence in China was listening, and if they were, they were assuredly not pleased. Without power on the international stage, I maintained, much in line with Merritt’s arguments, the EU could whistle as long as it liked in the wind, without effect. Much more important than EU institutional pontificating is the huge foreign direct investment footprint of European corporations on the Chinese mainland. They bring- with varying degrees of best practice-product quality, speed of delivery, treatment of workforces, training Chinese managers in the complex task of running multinational corporations in the global political economy, and career opportunities beyond traditional glass ceilings. “Brussels” should leave it to the managers. If you don’t have clout, keep quiet, is my preferred maxim.

Another maxim of mine, in fact of business schools, is KISS: keep it simple and stupid, because if its starts complex, imagine what will happen when initial complexity is multiplied many times over by the complexity of the modern world.

All three books are excellent, well written, and invite reflection. Which is not to say that I agree on a number of points. Disagreeing is part of debate, indeed vital, if such complex matters as Europe are to be discussed. If full agreement were to be reached, it would be a sure sign that something had gone horribly wrong. That is why I so disapprove of the terms “Europhile” and “Eurosceptic”. Scepticism is essential in all matters political. Belief involves the suspension of doubt. That is why it is intrinsic to religion. Politics is not religion, but a necessary activity. As for the idea of Europhile, it is generally deployed as being pro EU. What, may one ask, do you do if you consider, like I do, that the present direction of travel of the EU, has led to not one car crash, but a general pile up, with more cars heading towards the site going forward. I remain a Europhile Eurosceptic.

That’s why I find myself nodding in agreement with Stiglitz when he suggests that amicable divorce is better than muddling through. If only that were possible, I sigh. I nod in agreement with Simms’ main thesis which is to examine the deep historical roots of the European states, indeed of the European state system. French roots, though, do not suggest a rapid breakthrough to the federal endgame.

One gets the impression that many people in the Brussels bubble, not Merritt I hasten to add, think that with one more Big Push, and we’ll all be there. I fear not. There is an awful lot that we in Europe still disagree about.

If that’ is the case, as I believe it to be, my advice is relax. Use time as our friend. Lets get back to using the future as a place to locate present disagreements, while planning for the next European Council at a pleasant watering hole. And I agree with Merritt that if only the collectivity of member states could be herded to cooperate effectively, that would be great. But it won’t happen any time soon. So I go for a second, or even third best.

That entails much more pragmatism; much less conviction. Sticking to principles is not great politics, pace current EU spokespeople on the intangibility of the four freedoms. It’s the cause of the problem. Europe requires a flexible regime, where most member states conform to the principles. But if one, say the UK, says: “I’m just digesting 8 million net immigrants who have come here over the past twenty years. I need a time to have a break”, pragmatic politicians would have said, “Go ahead, you have an excellent reputation for implementing EU policies”. But no. We stick to our principles. We stick to the Euro. We propose immigration, as does Merritt, without taking into consideration vastly different cultures, especially Islam.

The roots of Europe, as the Catholic historian Christopher Dawson, wrote in his The Making of Europe: An Introduction to the History of European Unity, are Christian. Forget Europe’s history at your peril. In that sense, Cameron and social liberals in Brussels are all of the same mould. That is what worries me: our leaders all too often don’t know the Europe they seek to fashion. These three books remind us how complex the task is.


About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) ( His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
This entry was posted in China and East Asia, France and Germany, India, Italy, The Euro and the EU, United Kingdom, World politics, business and economics and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s