Tuesday


Mario Monti said of the Euro that, “the will to make it indissoluble and irrevocable is there.” Today, perhaps yes, but what will the will be tomorrow?

Each time the Eurozone puts together another bailout package the markets follow with a brief (sometimes very brief) rally, which collapses pretty much as soon as reality reasserts itself and it becomes obvious that most of the measures constitute creative ways of kicking the can down the road, while those more ambitious measures that are more than kicking the can down the road are probably overly ambitious and not likely to be practical policies in the midst of a financial crisis.

Simply from a practical point of view, it is difficult to imagine how anyone can believe that a more comprehensive fiscal and political union can be brought about in the midst of the crisis, although formulated with the best intentions of saving the Eurozone, since the original (and much more limited) Eurozone was negotiated, planned, and implemented over a period of many years, not over a period of few days as inter-bank loan rates are climbing by the hour. Apart from this practical problem, there are several issues of principle at stake in the Eurozone crisis and the attempts to rescue the European Monetary Union.

Mario Monti was quoted in a Reuter’s article, Monti says EU hinges on summit talks outcome: report, in defense of strengthening financial and political ties within the Eurozone as a way to save that Euro that:

“Europeans know where they’re going… the markets are convinced that having given birth to the euro, the will to make it indissoluble and irrevocable is there and will be strengthened by other steps towards integration.”

Can the Euro be made “indissoluble and irrevocable”? Can anything be made indissoluble and irrevocable? I think not, and this is a matter of principle to which I attach great importance.

I have several times quoted Edward Gibbon on the impossibility of present legislators binding the acts of future legislators:

“In earthly affairs, it is not easy to conceive how an assembly equal of legislators can bind their successors invested with powers equal to their own.”

Edward Gibbon, History of the Decline and Fall of the Roman Empire, Vol. VI, Chapter LXVI, “Union Of The Greek And Latin Churches.–Part III.

Since I have quoted this several times (in The Imperative of Regime Survival, The Institution of Language, and The Chilean Model, e.g.), implicitly maintaining that it states an important principle, I am now going give this principle a name: Gibbon’s Principle of Inalienable Autonomy for Political Entities, or, more briefly, Gibbon’s Principle.

As I have tried to make explicit, Gibbon’s Principle holds for political entities, but I have also quoted a passage from Sartre that presents essentially the same idea for individuals rather than for political entities:

“I cannot count upon men whom I do not know, I cannot base my confidence upon human goodness or upon man’s interest in the good of society, seeing that man is free and that there is no human nature which I can take as foundational. I do not know where the Russian revolution will lead. I can admire it and take it as an example in so far as it is evident, today, that the proletariat plays a part in Russia which it has attained in no other nation. But I cannot affirm that this will necessarily lead to the triumph of the proletariat: I must confine myself to what I can see. Nor can I be sure that comrades-in-arms will take up my work after my death and carry it to the maximum perfection, seeing that those men are free agents and will freely decide, tomorrow, what man is then to be. Tomorrow, after my death, some men may decide to establish Fascism, and the others may be so cowardly or so slack as to let them do so. If so, Fascism will then be the truth of man, and so much the worse for us. In reality, things will be such as men have decided they shall be. Does that mean that I should abandon myself to quietism? No. First I ought to commit myself and then act my commitment, according to the time-honoured formula that “one need not hope in order to undertake one’s work.” Nor does this mean that I should not belong to a party, but only that I should be without illusion and that I should do what I can. For instance, if I ask myself ‘Will the social ideal as such, ever become a reality?’ I cannot tell, I only know that whatever may be in my power to make it so, I shall do; beyond that, I can count upon nothing.”

Jean-Paul Sartre, “Existentialism is a Humanism” (lecture from 1946, translated by Philip Mairet)

This I will now also name with a principle: Sartre’s Principle of Inalienable Autonomy for Individuals, or, more briefly, Sartre’s Principle.

If that weren’t already enough principles for today, I going to formulate another principle, and although this is my own I’m not going to name it after myself after the fashion of the names I’ve given to Gibbon’s Principle or Sartre’s Principle. This additional principle is The Principle of the Political Primacy of the Individual (admittedly awkward — I will try to think of a better name for this): political autonomy is predicated upon individual autonomy. In other words, Gibbon’s Principle carries the force that it does because of Sartre’s Principle, and this makes Sartre’s Principle the more fundamental.

At present I am not going to argue for The Principle of the Political Primacy of the Individual, but I will simply assume that Gibbon’s Principle supervenes upon Sartre’s Principle, but I wanted to make clear that I understand that there are those who would reject this principle, and that there are arguments on both sides of the question. There is no establish literature on this principle so far as I know, as I am not aware that anyone has previously formulated it in an explicit form, but I can easily imagine arguments taken from classic sources that bear on both sides of the principle (i.e., its affirmation or its denial).

Because, as Sartre said, “men are free agents and will freely decide,” the Euro cannot be made “indissoluble and irrevocable” and the attempt to try to make it seem so is pure folly. For in order to maintain this appearance, we must be dishonest with ourselves; we must make claims and assertions that we know to be false. This cannot be a robust foundation for any political effort. If, tomorrow, a deeper economic and political union of the Eurozone becomes of the truth of Europe, this does not mean that the day after tomorrow that this will remain the truth of Europe.

And this brings us to yet another principle, and this principle is a negative formulation of a principle that I have formulated in the past, the principle of historical viability. According to the principle of historical viability, an existent must change as the world changes or it will be eliminated from history. This means that entities that remain in existence must be so malleable that they can change in their essence, for if they fail to change, they experience adverse selection.

A negative formulation of the principle of historical viability might be called the principle of historical calamity: any existent so constituted that it cannot change is doomed to extinction, and sooner rather than later. In other words, any effort that is made to make the Euro “indissoluble and irrevocable” not only will fail to make the Euro indissoluble and irrevocable, but will in fact make the Euro all the more vulnerable to historical forces that would destroy it.

When I previously discussed Gibbon’s Principle and Sartre’s Principle (before I had named these principles as such) in The Imperative of Regime Survival, I cited an effort in Cuba to incorporate Castro’s vision of Cuba’s socio-economic system into the constitution as a permanent feature of the government of Cuba that would presumably hold until the end of time. This would be laughable were it not the source of so much human suffering and misery.

Well, the Europeans aren’t imposing any misery on themselves on the level of that which has been imposed upon the Cuban people by their elites, but the folly in each class of elites is essentially the same: the belief that those in power today, at the present moment, are in a privileged position to dictate the only correct institutional model for all time and eternity. In other words, the End of History has arrived.

Why not make the Euro an open, flexible, and malleable institution that can respond to political, social, economic, and demographic changes? Sir Karl Popper famously wrote about The Open Society and its Enemies — ought not an open society to have open institutions? And would not open institutions be those that are formulated with an eye toward the continuous evolution in the light of further and future experience?

To deny Gibbon’s Principle and Sartre’s Principle is to count oneself among the enemies of open societies and open institutions.

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Friday


There is a famous song by The Beatles that begins, “I read the news today, Oh boy.” This is what I felt like when I looked at today’s Financial Times (since I am still a newspaper reader, despite the declining position of the papers today). The Old World once again appears to be coming apart at the seams. All around the Mediterranean basin, throughout the region where once reigned the Roman Empire, there is turmoil: the Eurozone economic crisis playing out in Greece, Italy, and Spain, the Egyptian military canceling the election results, and civil war in Syria.

The failures in Europe and the failures in the Arab world will certainly interact in unpredictable ways. What remains to be seen — unlikely though possible — is whether these failures escalate each other and result in a complex catastrophic failure of the complex system that is the Old World. Will European economic failure mean that peoples from the Arab world will no longer seek to migrate to Europe, or will it mean that Europe’s weakness will create the conditions allowing a greater transfer of population? This is a complex question, and only time can tell what direction events will take.

When the Eurozone was created there were predictable but also believable claims made on its behalf that it would surpass the US as an integrated economic zone. Now we know that this is not going to happen. The next few years and decades will see countless analyses of what went wrong with the Eurozone. There will be more than one diagnosis, and ongoing events in Europe will continue to churn the mix, turning up further interpretations.

What lies ahead for Europe? Will Europe have a “lost decade” such as Japan experienced, or more than a decade? Again, only time will tell, but there are some general observations that can be made. The future of European development will exemplify regionalism rather than continental integration. I have suggested that a new economic zone in Northern Europe, a modern analogue of the Hanseatic League, might be more successful as an economic bloc. Even if nothing so ambitious is tried again, and there is no Hansa to replace the Euro, the economics of Northern Europe are likely do much better than those of the south. All one needs to do is to look at their economies today to see that they are set for future development, while much of Southern Europe is set for stagnation.

It took a decade for the Euro to reveal its fatal weaknesses. It took a year for the Arab Spring to reveal its weaknesses. It would be easy to be cynical about what has been accomplished, or what was not accomplished, by the protests throughout North Africa, the Levant, and the Persian Gulf, but we should not abandon our hope so quickly.

The Arab peoples have been living under perversely repressive regimes for decades, and in some cases for centuries. Such stagnancy from retrograde regimes cannot be shaken off in a year. We should understand the Arab Spring, whatever its successes or failures, as one of those periodic uprisings that mark societies struggling to free themselves. There will be further unrest, and more Arab Springs to come in the future.

Denis Diderot, committed as he was to the extirpation of the old order in the Old World, notoriously said, “Men will never be free until the last king is strangled with the entrails of the last priest.” This was never more true than it is today, although today we ought to say, “Man will never be free until the last Sheik is strangled with the entrails of the last Mullah.”

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Saturday


What was once in the recent past spoken only in a hushed whisper is now openly discussed and debated: the break up of the Eurozone. But what exactly does “break up” mean in this context? The term implies a catastrophic failure that is not likely to come about, however painful a Greek exit from the Euro would prove to all the Eurozone economies. The Economist Intelligence Unit is calling the Eurozone crisis “€urogeddon,” which seems a bit dramatic for the financial press. With dire news following day upon day it would be easy to be very pessimistic about the Eurozone at the present time, but I am not pessimistic, although the short term outlook is not good. Being able to distinguish the short term prospects of an institution from its long term prospects is crucial in this context.

What exactly would a “break up” of the Eurozone look like? Here is what the Economist Intelligence Unit says in their report, “After €urogeddon? Frequently asked questions about the break-up of the euro zone”:

Firm predictions are tricky, but broadly a fracture between a strong northern “core” and the weaker “periphery” looks most likely. The process would, in our view, probably entail periphery countries breaking off individually to leave a “rump” of northern countries still within a currency union. Once one peripheral country (say, Greece) left, all the other vulnerable countries would probably follow. This means that Portugal, Ireland, Italy and Spain would leave the euro, although not necessarily immediately. Malta would probably leave, and Cyprus would have little choice but to exit as its banking system would be nearly wiped out by a Greek collapse. Up to ten countries could remain members of the euro: Germany, France, Austria, Belgium, Finland, Luxembourg, the Netherlands, Slovakia, Slovenia and Estonia (the last three all being small, open economies like Malta and Cyprus, but with healthier fundamentals).

It is interesting to me to see how this analysis — which I believe to be entirely reasonable and defensible — follows the principle of distinguishing center and periphery, which is something that I have been thinking about recently, and which I wrote about in The Farther Reaches of Civilization and The Second Law of Geopolitical Thought.

Thus a “break up” of the Eurozone would likely involve recession, riots, civil unrest, and bank failures (all these are also discussed in the Economist Intelligence Unit paper quoted above), but it would not be a catastrophic failure. We are not likely to see the dissolution of the Eurozone. The Euro currency will not only survive, but will eventually strengthen as the weaker and underperforming economies of the Eurozone leave the currency union and pursue a different — and marginal — economic path. The underperforming economies will devalue their labor, eventually attracting a little investment on the basis of this devaluation, and will more or less be relegated to a permanent twilight of an economy based almost entirely on tourism. (This is the obvious fate of Greece, and is likely the fate of Greece even if it remains within the Eurozone.)

A rump Eurozone would in fact be a healthier and more sustainable Eurozone than the current Eurozone, which attempts to treat underperforming economies the same as nearly optimal economies. The current Eurozone, with its peripheral members included, is like a cart pulled by two horses — a plough horse and a race horse yoked together. The financial markets are already anticipating this longer-term strengthening of the Euro. If the markets were expecting a catastrophic failure in which the Euro entirely disappeared and all the Eurozone member nation-states reverted to a national currency, we would see the Euro driven down dramatically. The Euro has fallen, but it still remains well within a ten year horizon of trading values. Nothing truly dramatic has happened to its value. If a catastrophic failure was expected, the Euro wouldn’t be trading ten or twenty percent down from its highest value, it would be trading at ten percent of its highest value.

Euro exchange rate with the US dollar in the second half of 2011.

The Eurozone still remains one of the great socioeconomic experiments of human history — an experiment on a grand scale, like the Constitution of the US, which attempted to put Enlightenment-era values into actual practice as a political institution. We recall that the US, in the course of working through its experiment, has encountered some major obstacles, such as the Civil War. As it happened, the US did not break up, or even shed its underperforming regions; however, it maintained its unity only through force of arms. This is significant.

One of the radical and novel aspects of the Eurozone is that it has been voluntary; no military power was been employed either to establish the currency or to further the expansion of the Euro or to secure its ongoing unity. We cannot place too much importance upon this unique historical fact. The very existence of the Eurozone is a living and vital rejection of the Stalin Doctrine. This is not only historically unusual in global terms, it is remarkably at variance with European history itself, which has been unparalleled in its violence and bloodshed.

Because the Eurozone is voluntary, it can afford to be flexible over the long term. It may not have been initially conceived as a flexible institution that could grow or shrink as political and economic conditions change over time, but I think that it could become something like this. Even while the peripheral economies may fall away, several nation-states continue with their accession process to join the Euro. From the experience of the Euro so far, we can more or less predict which economies will be able to successfully join the Euro, deriving a benefit thereby, and those economies which cannot successfully function as a part of the Eurozone.

The voluntary and egalitarian nature of the Eurozone will not vanish with a Greek default and exit from the currency union, even if the exit of Greece takes another member states out of the currency union at the same time. In fact, it could be argued that the experience will make the Eurozone more voluntary and more egalitarian. If the Eurozone comes to include formal protocols both for entering and for exiting the Eurozone, the voluntary nature of the association will have taken a step toward rationalization, and the Europeans will have accomplished something that the US was not able to accomplish: peaceful succession.

I am optimistic that the Eurozone (under the security umbrella provided by overwhelming US military force) may become one of human history’s first truly intelligent institutions. In some earlier posts I made a distinction between the grades of flexibility in institutions, and suggested that humanity might someday be capable of living under intelligent institutions which can take account of their own need to change over time, and the effect this change intelligently and peacefully, rather than being dragged kicking and screaming into the future. The Europeans have proved that they can learn from history, and have demonstrated this by peacefully creating and living within the Eurozone. If they can learn to live without solving problems through force of arms, there is hope that they can also learn to live with truly egalitarian, flexible, and intelligent institutions that can learn from past mistakes and incorporate change into the very structure of that institution. Time will tell.

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Note Added 04 July 2015: While the above was written years ago, the analysis is still more-or-less accurate, and I can stand by most of the claims I have made. I have further elaborated on the past difficulties and future economic possibilities for Europe in the following posts:

Poor Cousins

The Economic Future of Europe

An Alternative to the Euro

The Dubious Benefits of the Eurozone

Shorting the Euro

Will the Eurozone enact a Greek tragedy?

A Return to the Good Old Days

Can collective economic security work?

What would a rump Eurozone look like?

The Old World in Turmoil

Gibbon, Sartre, and the Eurozone

Europe and its Radicals

Default in the Eurozone

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