Thomas Carlyle, the eminent Scottish essayist, wrote that the history of the world was but the biography of great men. This tells half the story: the eurozone crisis shows how financial markets can weigh down on deeply rooted political cultures. But individuals do make a difference.
Contrast our leaders with their 20th-century predecessors. Unlike Eisenhower or Reagan, a cerebral President Obama does not enjoy deep personal bonds with the principal actors in Europe. Helmut Kohl’s vision for a unified Germany within a united continent contrasts with the crablike approach followed by his one-time protégée Angela Merkel. The common denominator today is a lack of economic statesmanship.
The eurozone crisis is now three years upon us. To date, the international response has been faltering and piecemeal. There are imperfect historical parallels between the present economic crisis in Athens and an earlier Greek crisis in the winter of 1947, which similarly threatened to produce a domino effect across Europe. The two eras are of course different. Still, the Marshall plan required a great deal of political courage. Truman, Acheson and Marshall had to pull out every stop to secure congressional approval for the newly expansive foreign policy which – in notable contrast to today – was secured on bipartisan lines.
That earlier European crisis forms the backdrop to Acheson’s memoir, Present at the Creation, which vividly describes the creation of a postwar order in which the US assumed world leadership. Arguably, the stakes in the eurozone crisis are just as high. A break-up of the single currency at this point would be overwhelmingly against US interests. And officials in Brussels do speak of the stuff of history, the greatest phase of institution building since Monnet, Schuman, Spaak and De Gasperi. But the lack of crisis management and statesmanship on either side of the Atlantic prompts a different view for these times: Absent at the Creation.
There are several reasons why the US has today employed a more cautious response to Europe’s debt crisis. The US was the epicentre of the financial crisis, so its initial response involved “containment at home”. Indeed, it remains constrained by its own fiscal and political shortcomings. By the time of the second phase, US soft power had eroded. To echo Ms Merkel, those responsible for the crisis should not lecture those caught up in the consequences.
Yet none of the above fully explains why America has failed to exercise the leadership that it applied not just in the winter of 1947 but in 1997-98 during the Asian and Russian financial crises. Part of the answer lies in the Obama administration’s strategic pivot toward Asia. Yet, contrary to the European imagination, US politicians are quite capable of walking and chewing gum at the same time. This is not necessarily a zero-sum game.
More likely, the White House has made a conscious decision to exercise restraint because the eurozone’s problems involve questions that only the Europeans themselves can answer. These questions concern democracy, governance and sovereignty, which go to the heart of national identity and political culture. In Mexico’s tequila crisis, for example, the US was drawn into crisis management because its own currency was at stake. This time it is a euro-denominated crisis rather than a dollar-denominated crisis.
Similarly, resistance in Europe to US overtures or admonishments derives from the belief that the future of the euro is ultimately a matter for Europeans to resolve. But how much confidence should we have that the Europeans will vindicate their own judgment?
Barely a few weeks ago many commentators had written off the euro. Mario Draghi’s bold decision to provide cheap credit to Europe’s banks has bought a breathing space, perhaps more. But excessive pre-Christmas pessimism has given way to excessive post-Christmas optimism.
Politics – rather than markets – will probably dominate in the coming months. The place to watch is not just Ireland, which this week announced a referendum on the German-ordained fiscal compact, but France. The present frontrunner in the presidential election, Socialist François Hollande, who appears to be widening his lead in the polls over President Nicolas Sarkozy, has promised to renegotiate the treaty.
The big question, then, is whether the politics can catch up with the economics. Germany does have a plan for a political Europe to balance a more integrated eurozone. The fiscal compact may be part of a bigger game-plan to launch eurobonds, which some see as the logical answer to the crisis. But as has been remarked, there are three Germanys in Europe: the chancellor, the Bundesbank and the constitutional court. The push-me, pull-you between these three power centres is one reason why Ms Merkel is constrained.
And as the latest spat over the ECB’s easy credit policy amply demonstrates, there is considerable resistance within the Bundesbank for measures that many believe were essential to rescue the euro. There may be concerns about long-term inflationary effects, but, right now, the matter has become existential – just as it was in Greece in 1947.
America has so far refrained from intervention. But if, as I suspect, we are entering a new phase of the euro crisis, where politics becomes paramount, there may be a case for greater American engagement and, yes, economic statesmanship. If not to save the Europeans from themselves, then to save the rest of the world from the consequences of an uncontrolled eurozone break up.
The article is based on a lecture given at the University of Edinburgh. The writer is the editor of the Financial Times
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