The road to nowhere.

Retrospectively it appears that European leaders, particularly those of the Eurozone, were stupidly dazzled, blindly ignorant or very cynical. In every case, they and their supporters are collectively responsible for building an economic union based on profit, without taking into consideration the political and social consequences. The construction of a single market, with the free circulation of goods, services and investments, was the first folly. The second was the creation of a monetary union without a corresponding political union.

European borders are as artificial as they are elsewhere, and not much older. They are the result of centuries of bloodshed and changing rule, and they assemble arbitrarily a variety of linguistic and religious communities who have different traditions linked to their geography, their history and their economic development. Since their conception little more than a century ago, European nations have struggled to knit these communities together and to reduce their distinctive attributes, to make a nation of them. The methods employed were often brutal, but regional revivals show that cultural communities are still alive everywhere. They will not and they cannot disappear. The refusal is because of people’s capacity to identify themselves with their place of residence. Human presence modifies the environment and, reciprocally, the environment molds the inhabitants. Cultural particularities simply reinforce the identification. The impossibility is due to an uneven distribution in the production of wealth. Industry, finance, trade and their infrastructures are concentrated in certain regions, and even agriculture cannot be developed extensively anywhere. European governments have tried to compensate these inequalities by distributing subsidies in a more or less transparent manner. This has led to corruption in the poorer regions and discontent in the richer ones, to the point where several nations are threatened by movements demanding secession, who refuse the opaque transfers of wealth to their less advantaged fellow countrymen.

Regional disparities within nations are probably unavoidable. But, in European nations, universal education, two world wars and various other catastrophes have built bonds of solidarity that makes the system of subsidies acceptable for a majority of citizens. The European Union’s founding fathers imagined that disparities between nations could be attenuated by a similar system of wealth transfers, first with six members, then nine, ten, twelve, and now twenty-seven. Knowing full well how tenuous the national bond can be, Europe’s leaders seem to have believed that European nations were more cohesive than a nation’s regions. This was conceivable for the original six nations (Germany, France, Italy, Belgium, Holland and Luxemburg), who had been working together at the distribution of aids to development ever since the post-war Marshall Plan. Later members did not share this common history, and with each new admission the solidarity was stretched a little farther. The inclusion of most of Eastern Europe, after the breaking up of the Warsaw Pact in 1991, tore it to pieces. What do Poles and Portuguese have in common -- or Belgians and Bulgarians -- that can solicit a sense of solidarity, other than the Russian threat? But military coalitions such as NATO have very little impact on trade, industry and finance. And, even in the Soviet heyday, the menace of Red Army tanks overrunning Western Europe was more theoretical and polemic than real, while the German Democratic Republic, Hungary, Czechoslovakia and Poland have had first-hand experience of it.

The European construction was accompanied by large quantities of financial aid, moving from North to South and later from West to East. As happens elsewhere, most of this aid came straight back to its source, in the form of demand for Northwestern goods and services. Foreign aid is often a way to subsidise exports, and so it was inside Europe. In the Northwest, production grew, paid by taxes and consumed abroad. There was a proportionate growth in employment but wages and consumption had to stagnate. Profits were multiplied. The North to South financial flows inside the twelve member union were very similar to the regional transfers of wealth practiced by member states, generally from the industrial regions to those where agriculture and stockbreeding predominated. But after 1991, when Eastern European countries joined the union, the nature of the financial flows changed. The essentially state owned decrepit economies were being dismembered and sold off like scrap, and Northwest corporations stepped in and bought up the choicest parts at giveaway prices. Quite quickly they were outsourcing production and covering Eastern Europe with shopping malls and chain stores. A tsunami of investments that was supposed to bring Eastern Europe into the fold of advanced consumer nations, a corporate gold rush that destroyed the existing social and economic structures and encouraged a get rich quick attitude. A few of these new European citizens benefited, many lost out and some kept up their status as state functionaries, whereas corporations moved goods from low cost to high price, to the greatest satisfaction of their shareholders. Low cost food from the highly productive subsidised Western agribusiness went East and wrecked the local production. And low cost qualified Eastern labour attracted Western factories leaving gaps in the industrial fabric and unemployed labour. Bringing Eastern Europe into a single competitive market increased corporate profits, but it took no account of social and political needs. And, like the rest of that very expansive period, it amassed mountains of debts.

One of the arguments promoting the single currency was that it would be an alternative to the almighty US dollar. Another argument was that it would avoid the fluctuating rates of exchange between national currencies. And an independent Central Bank would have the task of balancing interest rates and inflation (but not of promoting growth and employment). On the first of January 2002 the citizens of twelve nations (Austria, Belgium, Finland, France, Germany, Greece, Holland, Ireland, Italy, Luxembourg, Portugal, and Spain) and of three pseudo-states (Monaco, San Marino, and Vatican) began using the euro as legal tender. For a while the old and the new notes and coins were in circulation, and price tags were in both currencies. After about a year euro money largely dominated, while prices calculated in the old monies were printed smaller and smaller. This inevitably brought about a leveling of prices throughout the Eurozone. For industrial goods price parity had begun in the 1990s. For food and rent it was quite sudden. In the North the cost of living with euros fell slightly, which facilitated some reductions in wages and social benefits. In the South the cost of living with euros rose considerably, which meant that wages and social benefits had to follow suite.

The North was frugal and the South was prodigal, but the frugality was painless and the prodigality was unavoidable because of the euro’s level field. In a short space of time, Portuguese, Irish, Greek and Spanish employees were earning and spending (almost) like their German or Dutch counterparts. This included all state functionaries, the armed forces, the police, et cetera. However, productivity and wealth creation had not increased significantly. In the North wage moderation meant that even small productive gains went to lowering prices and raising profits. In the South the gains were drowned in the general inflation. Having lost the control of monetary creation, Southern governments had to borrow to finance their rising expenses. Their inflation was compensated by debt. And the increased dividends in the North furnished the wherewithal. In the North restraint on wages and consumption, which are the main sources of tax revenue, meant that governments were also borrowing to maintain growth in spending. This tottering giant with feet of clay was brought to his knees by the financial turmoil of US subprime loans and the collapse of Lehman Brothers. But he was a dead man walking from the start.

Since 1992 the euro has been the mainstay of the European Union, its only long term unifying project. At present the euro is faltering and will probably go under, which will set the European calendar back twenty years. A new course of events will have to be found with a new perspective untainted by triumphant neo-liberalism, and with the hindsight of experience. Less profits and speculative investments, more concern for health, education, housing, jobs, pay, creative innovation and -- considering that things have progressed considerably since Walter Lippmann’s pessimistic diagnosis of “Public Opinion” in 1922 -- for getting Europe back on the road to a federal union of autonomous regions, which would consign nationalism to history’s dustbins. An unlikely outcome, however, as there are vast reserves of arms to oppose any form of redistribution, and plenty of mercenaries willing to use them, be it on a national or on a global theatre. Europe’s future is gloomy, but all the promises of the past were just tinsel and stardust so Europeans are best rid of their illusions. Sharing does not result in everybody getting richer, only in everyone being more human.