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Euro vision.

By Denis Boyles.

26 FEBRUARY 2010 – THE EURO APPEARS TO be floundering on the shores of the Mediterranean.

W. Alison Phillips as a student at Oxford

W. Alison Phillips as a student at Oxford

The fraying of the continental currency at the edges of the eurozone – marked now by rioting civil servants and union militants in Athens, but soon to spread anywhere there’s a heavily subsidized “public sector employee” facing the possibility of being paid less as a consequence of financial reality – shouldn’t come as much of a surprise. Governments run on money, and the wonderful thing about the euro up until now has been that the government of, say, Greece, ran just as inefficiently on German euros as it did on Greek ones. Eventually, as common sense would suggest, it all must chug to a stop and fall apart. It won’t be the first time. The struggle to unify Europe is 2,000 years old, after all.

In discussing one of the many relatively recent EU precursors, the “Holy Alliance” of 1813-23, W. Alison Phillips, in The Confederation of Europe – written almost a century ago – points out that even though these politically salvational alliances are inflated with ambition and made buoyant by a kind of aspirational hydrogen, they can’t last forever, and when they finally go down in flames, the predictable result is chaos – or even violence.

The justification for these adventures is very often the same – they are invariably seen as the only way forward. Such was the vision that inspired the Holy Alliance, for example. Phillips, whose Oxford photo appears here, quotes Saint-Simon: “In order that the transition from the feudal regime to the industrial system might take place in a peaceful manner, it was necessary that a supreme power should be established.”

Phillips was a famous Unionist historian who occupied the Lecky chair at Trinity College Dublin. One of his successors, the much more left-wing T.W. Moody, whose copy of The Confederation of Europe I own, scrawled into the margins of Phillips’ book, “It might similarly be argued now that, after the war, a democratic world-power will be necessary in order that the transition from the capitalistic to the socialistic system may take place in a peaceful manner.”

Right. Well, moving money from those who have it to those who spends lots of it isn’t easy. German Chancellor Angela Merkel admitted to reporters this week that for the first time, “the euro is in a delicate position” because of the Greek collapse. Her country is resisting a bailout, something that has angered some Greek politicians. Deputy Prime Minister Theodoros Pangalos, for example, told the BBC that the “whole economy was destroyed” by the Nazis during the bloody occupation of the country when the Greek treasury was drained dry, its contents sent to Berlin. The Germans said it was a loan. “They borrowed it using violence,” Pangalos delicately explained.

As I wrote in a 2005 book, some of Europe’s boosters like to pretend the genesis of the EU was in the European Steel and Coal Treaty of 1951. Others cite the 1957 Treaty of Rome as the European Economic Community’s birth certificate. In fact, this latest effort to unify Europe has a slightly older pedigree. In addition to de Gaulle’s wish for a European military effort to counter American power, Germany has long had an ambition to mount a unified European economic offensive against the US. In the words of former German finance minister, Walther Funk, “The United States must give up the idea of forcing its economic conditions on Germany and Europe.”

Funk, as it happens, was Hitler’s economist, and one of the principal architects of the so-called “New Order” envisioned by the Germans. (He was also the Nazi state minister who in 1938 drew up the laws banning German Jews from engaging in commerce.) As early as 1941, Nazi propagandists were proclaiming that “the United States of Europe has at last become a reality.” In his excellent and contrarian survey, Dark Continent: Europe’s Twentieth Century, historian Mark Mazower pointed out that the Europe proposed by Funk and other Nazi strategists “bore more than a passing resemblance to the post-war Common Market. The ‘New Order’ beloved of the youthful technocrats at the Reich Ministry of Economics involved the economic integration of western Europe and the creation of a tariff-free zone.”

The plan advanced by Funk and others saw a common currency, a central bank and the other institutions that are critical to the EU today. It was described in the words of Hermann Neubacher – “Hitler’s Balkan supremo,” according to Mazower – as a unified “Grossraum which instead of individual countries would form the economic unit of the future.” From the moment of its inception, the Nazi version of the European Union had the support of France; in fact, it was the Vichy deputy premier, Jacques Benoist-Mechin, who announced France was ready to “abandon nationalism and take [its] place in the European Community with honour.”

Eugen Weber, writing in The Atlantic in 2001, observed that for the French as for the Germans, Hitler’s New Order was above all European. “With French and German bankers, industrialists, and other businessmen meeting regularly,” Weber wrote, “the idea of a United States of Europe was making its way, along with visions of a single customs zone and a single European currency. The European Union, its attendant bureaucracy, even the euro, all appear to stem from the Berlin-Vichy collaboration” – an unholy alliance if ever there was one.

STRIPPED OF THE KIND of flexibility economic autonomy – or, more accurately, disunity – provides, the nations of Europe are once again facing the kind of “transition” that fascinated both Phillips and Moody. The Wall Street Journal reported this week that Spain is the next country to be forced to wrestle with its finances. “Greece set off the crisis rattling the euro zone. Spain could determine whether the 16-nation currency stands or falls….The euro zone’s No. 4 economy, Spain has an unemployment rate of 19%, a deflating housing bubble, big debts and a gaping budget deficit. Its gross domestic product contracted 3.6% in 2009 and is expected to shrink again this year, leaving Spain in its deepest and longest recession in a half-century. The problem is that, thanks largely to its membership in the euro, Spain lacks tried-and-true means to heal its economy. Spain can’t devalue its currency to make its exports more attractive and its sunny beach resorts cheaper because the euro’s value is driven by Germany’s bigger, competitive industrial economy. Madrid can’t slash interest rates or print money to spur borrowing and spending, because those decisions are now made in Frankfurt by the European Central Bank….’Spain is the real test case for the euro,’ says Desmond Lachman of the American Enterprise Institute in Washington. ‘If Spain is in deep trouble, it will be difficult to hold the euro together…and my own view is that Spain is in deep trouble.'”

Two days later, Le Monde reported comments by Canadian economist Robert Mundell, the “father” of the euro, saying Italy is “the greatest threat” faced by the European currency. While the situation there isn’t as grave as in Spain, Portugal and Greece, the country is second to Greece in the size of its public debt – currently 120 percent of GDP. Mundell, who won the Nobel Prize in Economics in 1999, said that unlike Greece or “other small states,” the Italian economy could not be saved through a bailout, because the economy is simply too big. The country will face major budget cuts. Given its volatile political environment and deep regional divide, the paper said, only an iron fist would be able to implement needed reforms.

The vision for the euro may not have surprised Phillips as much as it would have Moody. The task now facing European leaders is how to manage the currency’s transition from a “delicate position” to “deep trouble.” For once, the creation of a mega-government – yet another “supreme power” – is perhaps the least likely of all possible solutions. If 2,000 years of experimentation can’t lead to a solution to the problem of European unification, perhaps the answer is not in trying to find yet another solution, but in trying to find a more practical problem.

Denis Boyles is an editor of the Fortnightly Review‘s New Series.

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