A Passage to Gotland

27 August 2013

Tuesday


Visby 1

After a night in Stockholm my sister and I booked passage on a ship to Gotland. This requires a bus journey of about an hour to the ferry landing and then the ferry passage itself which took several hours. We were off the ship on Gotland before 3:00 pm and walked to our room in the oldest part of visby, still surrounded by its medieval walls. Visby, the largest city on Gotland, is sometimes called “The City of Roses and Ruins,” and indeed within minutes of arrival both roses and ruins are to be seen.

Though Visby is not large by any measure, it has a very interesting museum with a widely ranging collection that points to the historical significance of Gotland. There is an excellent collection of prehistorical “picture stones,” which are unique to Gotland and which date to immediately prior to the Viking period of Scandinavian history. …

There is also a display relating to the Battle of Visby in 1361, when rural Gotlanders rebelled against the growing control of Visby by the Hanseatic League. The Hanseatic League was essentially a transnational corporation of the late medieval period which operated around the cities of the Baltic, much as the commerce of the Roman Empire operated around the cities of the Mediterranean (I wrote about the Hanseatic League last year when I visited the Hanseatic museum in Bergen, Norway, which was another major depot for the Hansa). The remains of soldiers killed in the Battle of Visby were interred in a mass grave, still in their armor, and the excavation of this mass grave of medieval war casualties has provided significant historical knowledge about medieval arms and armor and the kind of damaged inflicted on the human body in such combat. This has been made famous by John Keegan’s book, The Face of Battle, since a picture of a skull in chainmail is used for the cover the paperback edition.

In addition to these finds, there is also a wide range of other material on the history of Gotland and Visby, including Viking treasure hoards and a striking medieval baptismal font.

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A wooden equestrian statue from the Gotlands Museum.

A wooden equestrian statue from the Gotlands Museum.

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Grand Strategy Annex

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Thursday


It continues to be a fascinating exercise to read the Financial Times each day to see the ongoing machinations and maneuvering around the fate and future of the Eurozone currency union. Some say it will be held together; others say Greece and a few others will leave the currency union and things will be fine; there are a few who insist that a Greek exit means that the currency union will collapse altogether. I have myself added to this lengthy debate with several posts, such as What would a rump Eurozone look like? and The Economic Future of Europe.


Euro area Member States
Non-euro area Member States
Member States with an opt-out

I have suggested that with the departure of marginal economies (nation-states that never were peer-competitors to the core Eurozone economies) will leave the Euro stronger than before, and with prospects for a distant futurity. The proof of this is that, while the Euro is down on international currency markets, it has not been aggressively bid down in a scenario such as would be the case if currency traders expected the Euro to be circling the drain. In comparison to other major world currencies, the Euro remains today in a stronger position than when it was first issued.


Which countries have adopted the euro – and when?


However, some of the recent arguments I have read suggesting that the Eurozone cannot continue to exist in its current form post-Greek departure have in them a hard kernel of truth. Some of this is semantics: if we say that the Euro cannot continue in its current form, all we are saying is that it could continue in an altered form. Read a little deeper in the context, though, and it becomes apparent that there rather more pessimism about the Euro than is captured by a mere semantic shift from the Euro based in the current Eurozone and a Euro based in a Eurozone minus Greece, Portugal, Spain, Italy, and Ireland.

One of the reasons that the Euro is not being aggressively bid down on international currency markets is that the core Eurozone economies have strong fundamentals, and these fundamentals are not going to disappear in a puff of smoke even if the Euro evaporates. Germany and France will continue to do business in some currency or other, and while their economies would take a major hit from the demise of the currency union, their fundamentals will ensure that they will recover and eventually resume economic expansion.

What I would like to suggest is that the Eurozone adopt a policy of economic shock therapy and take the bad news all at once, on the principle that a ratcheting downward of the Eurozone would create economic chaos and uncertainly each time a nation-state departed the currency union (a consequence of European leaders’ failure to see far enough down the road to make institutional provisions for both entry into and exit from the Eurozone). Europe could conceivably perpetuate the crisis of the Eurozone for a decade if marginal member nation-states fell away once every year or two. This would be a worst-case scenario that would set back the whole of the European economy for more than a decade as ongoing adjustments are made in the wake of further departures.

However, such a radical shock therapy need not mean the abandonment of some kind of currency union in Europe. I have suggested previously that the nation-states of Northern Europe that are on a more-or-less equal economic footing, and with more-or-less comparable social institutions and expectations, can work together well within a currency union in which tough economic standards are expected, enforced, and adhered to. Such a currency union of Northern Europe would roughly correspond to the extent of the Hanseatic League, which was a medieval trading group that flourish in the later middle ages and the early modern period — an international trading corporation before there was any such legal entity as a corporation or any such political entity as a nation-state (and therefore no sense of “internationalism” as we think of it today).

The Extent of the Hanseatic League in the late Middle Ages and Early Modern period.

A currency union in Northern Europe that roughly approximated the geographical region that once comprised the Hanseatic League would, I think, not only be sustainable, but would be a benefit to its members in the same way that being part of the Hanseatic League was a benefit to these late medieval and early modern merchants with their trading depots around the Baltic Sea. Rather than being dragged backward by non-compliant members, a union of economic peers would serve to pull each other forward. Strong provisions in any treaty governing such a union could ensure this not only by having a clearly defined legal process for departure from the union, but also, and as importantly, a clearly defined legal process to eject non-compliant members from the union.

In the map of Europe that I have colored below I have identified in a bright (Euro!) blue those nation-states that could probably cooperate in a strong Northern European currency union. This union could be “strong” in terms of its exclusivity and its willingness to exclude members that failed to maintain acceptable macro-economic targets. Membership would be a privilege, not a right; in the initial enthusiasm for the Euro, the sense of exclusivity was lost, which sentiment standing in for enforceable macro-economic standards. This Northern European currency union could be called, in deference to history, the Hansazone, and the currency could be called the “Hansa.” If the Swedes and the English could be persuaded to join too, all the better. This would work; the Eurozone as it is now constituted does not work.

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A “Hansazone” for a currency union in Northern Europe.

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Grand Strategy Annex

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Monday


The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

There is no question that it is unwise to engage in speculation at a time when events are poised at a moment of decision, but is there any moment that is truly free of historical consequence, when speculation might be a safer and more certain undertaking? I think not. Another time I will attempt to explain why not, which involves a careful consideration of several points in the philosophy of history, but I will leave that particular justification for another time and boldly press forward on the prospects of the Euro and the Eurozone, even as the Greeks continue to have difficulties forming a government after their recent elections, and even as the new president-elect of France, Francois Hollande, has not yet revealed the precise policies that will be implemented in the attempt to make good on his campaign promises assuring growth instead of austerity.

I have several times discussed the nature and difficulties of the Eurozone, first in a trio of posts about the crisis in Greece as it first become evident — The Dubious Benefits of the Eurozone and Will the Eurozone Enact a Greek tragedy? and Can punitive fiscal policy work? — and then in further posts about the Eurozone periphery more generally, beyond Greece — A Return to the Good Old Days, Can collective economic security work? and Poor Cousins. My most frequently read post on the Euro, Shorting the Euro, while still accurate is no longer timely. Since then I wrote What would a rump Eurozone look like?.

The Eurozone is a great economic experiment in the way that the US is a great political experience: both have represented a revolutionary new order while building on past experience. This, if nothing else, makes the Eurozone fascinating. In the categories of my own thought the Eurozone is not quite an intelligent institution since it was constituted with mechanisms for nation-states to enter the Eurozone but no mechanisms for a nation-state to exit the Eurozone. Most culpably of all, the Eurozone was designed without a mechanism for either 1) forcing compliance of member states with its standards, or 2) forcing member states to collectively come to the aid of a failing member state (or, I could also observe, some combination of the two).

If the Eurozone had had either of these two mechanisms — compulsory and enforceable standards, or compulsory wealth transfer from richer to poorer states — the acute problem in Greece at the moment, and the possibly chronic problems in Italy, Spain, Portugal, and Ireland, would present definite options. Without a formal mechanism for resolving the crisis, the financial crisis becomes a political crisis that it did not have to become.

The consensus in the financial press at the present time is that the Franco-German core of the Euro will remain intact, and that Francois Hollande will not set out to enact any radically socialist policies (cf. President Hollande and the IMF) that would doom either France or the Euro to the kind of perpetual economic twilight experienced by the nationalizing likes of Hugo Chavez, Evo Morales, or Cristina Fernandez de Kirchner. Hollande knows well enough on which side France’s bread is buttered, and his campaign rhetoric must be understood as something entirely parallel to the “red meat” speeches given in the US by both Republicans and Democrats during the primary season, only to be dialed back drastically when it comes to the general election.

But matters are altogether different outside the Franco-German core of the Eurozone, as what was once merely whispered is now on the front pages of the newspapers: the likelihood that Greece will leave the Eurozone. (cf. Greece, France and the future of the euro and EU central bankers ponder Greece euro exit) Indeed, today’s Financial Times had Greece on the front page (Fear grows of Greece leaving euro) and the inside pages (Greek exit from eurozone ‘possible’) as well as a new week-long series, “If Greece goes…”

What will the Greeks do if they leave the Eurozone? Will they take to the printing presses and start printing Drachmas until everyone has a satisfying pocketful of money and the economy is driven into hyperinflation and the Greeks impose on themselves the austerity that they were unwilling to accept from the Germans? Since it seems to be universally believed that a bloated public sector and no expectation of paying taxes is a good thing, maybe they will suspend taxes altogether in Greece, and add anyone who likes to the public payroll dole. Not surprisingly, such steps aren’t going to revitalize the Greek economy, promote prosperity, or stoke economic growth.

What Greece does have to offer is an enormous tourist industry, whose beaches and islands and quaint hotels with tavernas around the corner will suddenly become attractive to northern Europeans when they once again because an inexpensive playground, which will happen if Greece exits that Euro and allows a fully floating Drachma that can be bid down on the international currency markets. Of course, tourists hate riots, and they would prefer not to see news stories about pensioners committing suicide in the capital as a protest. A single negative newspaper story can ruin an entire tourist season, and the hotels and restaurants wait and hope that next year will be better.

This may sound cynical, but it is realistic, and as close to true as I cam capable of getting. In actual fact, the reintroduction of the Drachma will necessarily be partial. The very wealthy already hold their assets in financial instruments not directly linked to Greece. Those not truly wealthy, but who have enough assets that they know to protect themselves, will already have their assets (other than real estate) moved out of Greece to the extent that this is possible. For the lower income bracket, the lower prices that will likely come (barring hyperinflation) from Greece re-adjusting its internal price mechanisms will make life slightly more affordable, but any assets held in Greece will essentially be ruined.

In practice, Greece will use both the Drachma and the Euro, because the Euro isn’t going away; the Euro will continue to be used in the rest of Europe, and will continue to be used as a secondary reserve currency around the world. The Euro will continued to be used in Greece, but Greece will no longer have any rights in determining administration of the Euro. I suggested once that the adoption of the Euro in peripheral European countries could be understood as a pre-emptive Euroization of the European periphery, with “Euroization” understood analogously to “Dollarization.” Greece will be related to the Euro as Ecuador is related to the US dollar. In fact, Greece will come close to approximating what I have called currency pluralism.

Under these conditions, the Greek economy will slowly and gradually improve its position, but no one will mistake the Greek economy as a peer competitor to the core states of the Eurozone. The Greeks will learn that if they riot, they will damage the one source of revenue that they can count on — tourism — and those who can accept this deal will reconcile themselves to life in the slow lane. The ambitious will leave for other parts of Europe or to America.

What will the rest of Europe do upon the exit of Greece from the Eurozone?

The Eurozone is a paradigmatically technocratic institution that presumes to organize and administrate the ordinary business of life without imposing any kind of ideological constraints on member states. Critics of the free market model of western capitalism linked to liberal democracy never tire of pointing out the ideological presuppositions of trans-national institutions like the Eurozone, the World Bank, and the IMF. I imagine that many of the Greek leftists now aspiring to form a government probably buy into much of this critique. But as they rail against the center and consciously enact policies intended to prove that they were right all along, they will only be guaranteeing the economic marginalization of Greece.

The implicit ideology of the Eurozone, however, is not that of the “Washington Consensus” with its deregulation and privatization, low tax rates and minimal government (otherwise known as Yanqui imperialism). Rather, the ideology of the Eurozone is that of the post-modern welfare state, with its cradle-to-grave social support system and a social consensus in which (in the words of the oft-disparaged Malthus), “each man’s share of labour would be light, and his portion of leisure ample.” You can call this the “Brussels Consensus” if you like.

In very small nation-states with ethnically homogeneous populations and a strong Protestant work ethic, the Brussels consensus works marvelously — in fact, it works better in such places than it works in Brussels itself. And that is why the Scandinavian nation-states regularly top all lists of the world’s stable democracies with the highest standards of living. But the rest of Europe, much less the rest of the world, cannot make itself over as Sweden or Norway, Denmark or Finland. However, those regions of Europe and the Eurozone that already approximate this social milieu, will continue to thrive in the economic context of the Eurozone.

As the Eurozone moves northward and begins to add stable and growing economies from the former Soviet periphery — chiefly Poland, but also the Baltic states — the geographical area of the Eurozone will come more and more to resemble that of the Hanseatic League, the great medieval trading network of Northern Europe (a trans-national corporation from before the age of nations and corporations). If you are unfamiliar with the Hanseatic Leagues, I urge you to watch Jonathan Meades’ wonderful documentary, Magnetic North, which offers a sketch of the trading bloc that is both erudite and amusing.

The Glory that was Greece and the Grandeur that was Rome may soon be severed from the industry and commerce that is Northern Europe, and Europe will continual to evolve regionally in ways that are consistent with regional economic cultures. Balkan Greece will have its own Orthodox tradition in the Balkans. Catholic Southern Europe (Italy, Spain, Portugal, and the Mediterranean islands) will eventually realize its own slower track version of the Eurozone, closer to the Eurozone than Greece, but not quite the same as the Franco-German core. Protestant Northern Europe will continue to optimize the currency union for those nation-states that are capable of maintaining the economic standards of the Eurozone.

If the Eurozone treaty can grow and evolve and change with the times, the Eurozone that will result will be more efficient and effective than the Eurozone as it is known today. If only those nation-states that are peer competitors can enter the currency union on terms of being true economic equals, this bond will grow and strengthen over time. The “Euroized” periphery will benefit from the trickle-down from a vibrantly economically competitive Northern European economic zone, but life will be different for them. It is silly to pretend otherwise.

There will be both opportunities and dangers in this changed and changing Europe. As has been the case from time out of mind, the clever and the ambitious will exploit the opportunities and will live well; the slow and the timid will will accept their lot.

Thus Europe will come to exemplify the maxim that Thucydides attributed to Athens at the height of Athenian hubris, though displaced from the political into the economic realm: the strong will do as they will, while the weak will suffer what they must.

Is this kind of economic hubris unsustainable? Not in the least. It was the model for Europe in antiquity, as we have seen in the case of Athens, and which was no less true of Rome, and it was the model for Europe again throughout the Middle Ages. This is the European way, however much they seek to deny it.

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Grand Strategy Annex

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NATO’s Gambit

20 November 2010

Saturday


What’s an obsolete geopolitical entity to do?

The struggle for continuing relevance in a post-NATO world


As the NATO summit began in Lisbon, the BBC asked its readers “Is Nato still relevant?” The nature of the question, like many such questions floated in the mass media, was calculated for readers to express their distaste for the treaty organization. Many did so; many also defended NATO.

NATO is faced with a classic dilemma of what I have called historical viability. The original rationale for NATO — a treaty organization conceived and implemented for the purpose to addressing the threat posed by the Soviet Union and, more generally, the Warsaw Pact — no longer exists. For NATO to retain its historical viability in the wake of the absence of its raison d’être will require NATO to change. If NATO is an intelligent institution, will be able to make these changes; if it is not an intelligent institution, it will ultimately join the Warsaw Pact in oblivion.

The nation-states of the Warsaw Pact once comprised an enormous geographical area, most of which was the Soviet Union; now it is no more.

If, in accordance with what I call the principle of historical viability, namely, that, “an x fails when it fails to change as the world changes,” and its implied corollary that, “an x succeeds (better: demonstrates historical viability) when it changes as the world changes,” then NATO must change as the world changes. These changes may ultimately be profound and radical, such that in the long term future NATO becomes a political entity that is unrecognizable from the point of view of what it once was.

The NATO summit participants boiled down their strategic “concept” into a remarkably concise 11-page document, “Strategic Concept For the Defence and Security of The Members of the North Atlantic Treaty Organisation.” This document is broken down into bullet points under the headings of Core Tasks and Principles, The Security Environment, Defense and Deterrence, Security through Crisis Management, Promoting International Security through Cooperation, Open Door, Partnerships, Reform and Transformation, and, lastly, An Alliance for the 21st Century.

NATO has always been a strategically focused supra-national political entity, and the new initiative envisioned for NATO at the Lisbon summit is a sweeping strategic initiative of enormous proportions, though it appears in the “strategic concept” document as a single diminutive bullet point. Item 19 of the document reads as follows:

19. We will ensure that NATO has the full range of capabilities necessary to deter and defend against any threat to the safety and security of our populations. Therefore, we will:

And among the bullet points following, the sixth item down reads as follows:

develop the capability to defend our populations and territories against ballistic missile attack as a core element of our collective defence, which contributes to the indivisible security of the Alliance. We will actively seek cooperation on missile defence with Russia and other Euro-Atlantic partners;

A NATO-wide ballistic missile defense system would be an undertaking of enormous financial and technological proportions. It would be difficult to overstate the amount of money and technological expertise that would be absorbed by such an enterprise. And to have Russia participate in this undertaking would make it all the larger, apart from any troubling issues in regard to sharing the most advanced military technology that can be produced by the most advanced industrialized economies on the planet.

Whether such a system would work is mostly beside the point; if properly pursued, the economic and technological boost to involved economies would be significant. I don’t think that the system, once built, would be any more effective than the Maginot Line. If ballistic missiles can be shot down with any degree of reliability, then rogue regimes pursuing weapons of mass destruction, and intent upon their use, would use any means of delivery other than ballistic missiles. Given our experience on 11 September 2001 of the exaptation of commercial aircraft for military purposes, we need to take the unexpected — also known as strategic shocks — seriously. The order of magnitude of the surprise of 11 September 2001 is what we should expect. It would be simple-minded to expect something as unimaginative, and as relatively easy to counter, as a ballistic missile.

NATO’s strategic concept document is, at present, a mere “scrap of paper,” and the provision for strategic anti-ballistic missile (ABM) deterrence a mere bullet point written on this scrap of paper. For anything to come of it, member nation-states would need to get together and agree on at least the initial details of implementation, and they would need to budget for the initial stages of research and development. Moreover, once there emerges an elusive consensus among member states that R&D into the ABM system has reached a level of maturity that an actual ABM can be built, member nation-states will need to budget further funds for its construction.

In the present political climate of budget austerity, it would be much easier simply to do nothing at this point, and, as King Lear rightly said, nothing will come of nothing. However, the economies of NATO member states will eventually grow again, and funds will be available for projects such as ABM strategic deterrence if the political will is present to put this expensive and long-term project into practice. In the long term it would have substantial benefits regardless of its efficacy; in the short term it would be difficult to kick start because it is always easier to do nothing than to do something. Without some kind of external stimulus (like the Cold War stimulus to the development of military technologies), it seems unlikely that the political will to move forward with an international ABM system will overcome political inertia. Whether or not a strategic stimulus will appear must remain a known unknown for the time being.

NATO is a victim of its own success. The mission it was created to counter no longer exists because the Warsaw Pact no longer exists, and with the passing of the Warsaw Pact and the Soviet Union, a large-scale war in Western Europe taking the form of a massive armored penetration from east to west is widely understood to be unlikely. Since NATO was an institution constituted for a specific purpose and that specific purpose no longer exists, NATO is a strategic entity with no strategic purpose — in other words, its lacks its raison d’être.

We need new strategic institutions to manage current and future strategic threats — we need a clean slate. NATO should be gracefully retired (maybe with some kind of spectacular ceremony that gives closure to those who have invested their lives in the institution — but this should have been done in 1991 or thereabouts) and the Western powers should begin experimenting with novel strategic institutions in place of a retired NATO — institutions not tied to a particular history, a particular way of seeing the world, and a particular mission.

The decommissioning of NATO is unlikely to happen. This is partly due to the fact that once a bureaucracy is created, it is almost impossible to eliminate. Vested interests keep institutions in existence long after they have ceased to be viable. But this isn’t the only reason. I think that many people feel a quite genuine sentiment — an institutional patriotism, if you will — for institutions that have figured prominently in their lives. To put it bluntly, many people would be literally sad to see NATO go, feelings would be hurt (especially among those who have devoted their entire careers to the institution), and so excuses are found to keep NATO afloat.

Because it is unlikely that serious money will be made available for a NATO-wide ABM system, and because it is unlikely that the best technology that would emerge from such an undertaking would be freely shared with Russia (as was explicitly stated as a part of this initiative, presumably so that Russia would not feel threatened by it, and therefore would oppose it), and because it is at least equally as unlikely that NATO will be formally decommissioned, the most likely scenario in the near term future will be for NATO to continue its non-mission as a military bureaucracy, spending its budget on grandiose plans for an ABM deterrence that will not be built, and, if it is built, will not be effective.

Thus even our strategic aims and ambitions, which one might falsely suppose would be subject to the most brutal utilitarian calculation (and are so subject in time of war), are shaped by sentiment, nostalgia, and feeling. Perhaps we can afford this at present; perhaps we are so safe, so secure, and so affluent that we can support an optional military bureaucracy in place of one with an authentic mission based on contemporary strategic imperatives, but we cannot count on the world remaining in this happy state for long.

Supra-national political entities — like NATO, the Warsaw Pact, The League of Nations, and the Hanseatic League — have a limited record of historical viability. Perhaps the longest lived of those examples I have given, the Hanseatic League, was influential for a few hundred years, from the high middle ages into the early modern period. The influence of the Hanseatic League is felt to this day, but as a political entity today it is a non-entity, known only to historians and antiquarians. (It is interesting to hear Jonathan Meades’ exposition of the Hanseatic League in his Magnetic North television series.)

If NATO can maintain its relevance and its historical viability by transforming itself into a transnational missile defense military-industrial complex, it would defy the record of history. While this is not impossible, it is also not likely.

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NATO nation-states disproportionately comprise the most advanced industrialized economies, and thus they possess a significant technological edge, but this technological edge is vitiated by the political conditions under which NATO wages war.

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Grand Strategy Annex

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