A blame game at globalisation’s unravelling

One of the paradoxical consequences of the eurozone crisis is that German surpluses are likely to increase, as the country’s powerful export engine benefits not only from world recovery but also from a depreciated currency.

Since the international financial crisis broke out in 2007, it has often been blamed on global imbalances, reflected in large current account deficits or surpluses. The blame exercise came as a surprise. Academic economists usually treat imbalances not as a problem but rather as an easy measure of the extent to which the world was globalised. In the 19th century, Britain ran surpluses for decades while Australia and the US had equally long-term deficits, without provoking any global crisis.

Yet it now looks as though international imbalances are a sign of tension and conflict rather than a cause for celebration. Predictably, people in deficit countries tend to blame the problems on the surpluses. Thus loose monetary policy in the US in the 2000s is ascribed not so much to decisions of the Federal Reserve, but to the Chinese undervaluation of the renminbi in order to produce high levels of employment in export industries. This policy then generated – as an unintended consequence – large increases in reserves, which in turn fed into the American financial system.

Equally predictably, the surplus countries see things differently, and blame the profligacy and the debt addiction of the debtor countries.

This discussion occurs not just on a global level, but increasingly also on a European level. A remarkable feature is how quickly debates in the aftermath of the crisis were treated in national terms: no one pretended any more that there were common European interests. That is because a common feature of crises is that they are accompanied by calls for redistribution, and we really only have mechanisms for doing this via the nation-state. When redistribution takes place internationally, it is only as a consequence of war, in which one society forces redistribution on others.

The Germans in the current crisis have taken on the Chinese role, while the south Europeans looked like the Americans. But there are limits to the parallel: the US is a very powerful country, and looks like a safe and stable place in times of financial turmoil. That cannot really be said about the Mediterranean.

Attempts to correct global imbalances will not make the world safer, but are likely to reduce growth prospects. In its most recent World Economic Outlook (April 2010), the International Monetary Fund urges China to follow the example of Japan in 1988, ignoring the fact that the loose monetary policy that drove the reversal of Japan’s surplus then was a major link in the chain of events that led to that country’s “lost decade” in the 1990s.

The debate between debtors and creditors swings between two different ways of assessing legitimacy: power and morality. What especially irritates debtors is that creditors often present their position as fundamentally more virtuous: the Greeks are said to have excessively high pensions and excessively early retirement ages, while the Americans engage in consumer binges on the never-never, financed in ever more ingenious ways. The creditors point to generations of Confucian or Protestant teaching on the virtues of thrift.

But creditors also appear to be fascinatingly and horrifyingly powerful. The debate about China is also a fantasy about the day when China will dominate the world, while discussion of Germany’s role is laced with the retrospective trauma of the Nazi domination of Europe in the 1940s. Future and past thus conjure up a spectacle in which self-righteous morality is linked with political might.

When big power and income disparities arise, resentments increase. For decades, discussions about the international monetary order focused on the way that it appeared to be dominated by the US. For many Europeans, the aftermath of the current crisis is already that anti-Americanism is being replaced by anti-German ressentiment. It is more difficult to resent the charming and cosmopolitan Barack Obama than George W. Bush, who made an easy target. Angela Merkel has quickly moved into the vacant spot in the international demonology.

The last time a “Modell Deutschland” was explicitly formulated, by Chancellor Helmut Schmidt in the 1970s, it prompted a great deal of hostility from foreign politicians who objected to Schmidt’s “lecturing”. There was a suspicion that lecturing was a way of imposing German interests. Today’s background of domestic German political uncertainty and instability has made Ms Merkel’s increasingly frantic policy initiatives look like the major source of international instability. If Axel Weber, who appears the most qualified and credible candidate to succeed Jean-Claude Trichet as president of the European Central Bank, is appointed, he will provoke widespread outrage by the simple fact of being German.

Germany is becoming no longer Europe’s model but rather its whipping boy. And because the Germans are not as strong as the Americans, it really will be easy to whip them.

The writer is professor of history and international affairs at Princeton and Marie Curie Professor at the European University Institute