Europe in the current world crisis

Keynote lecture for the EASA Europeanist Network Workshop in Lisbon

Keynote for EASA’s Europeanist Network Workshop, ‘Overlapping crises in Europe (or a never-ending crisis)’, held in Lisbon, 2-3 November 2023. 

General introduction

What I call “national capitalism”, a synthesis of the nation-state and industrial capitalism, had its origins in the 1860s and early 70s when the leading powers of the next century—the United States, Russia, Britain, France, Germany, Italy, and Japan— each went through political revolutions based on an alliance between capitalists and the landed military aristocrats whom they had sought to remove from power in the industrial revolution. Its main symbol was a national monopoly currency (legal tender policed by a central bank).

This class compromise between government and business interests launched a global takeover by European colonial empires and a bureaucratic revolution that led to mass production and consumption at home by 1900. Two world wars and the anti-colonial revolution were the catalyst for what became the main form of society after 1945, with varieties of socialism driving the postwar world revolution that was replaced by a neoliberal counter-revolution by the rich around 1980 that gathered universality and pace after the Cold War ended. The rise and fall of single currencies offer one way of mapping national capitalism’s historical trajectory.

Our challenge is to conceive of society once more as something plural not singular—as a federal network rather than a centralized hierarchy, the nation-state. Europe was in the forefront of this next stage, but its institutional premises, especially the formation of the Eurozone, were deeply flawed. It took the United States half a century to secure an uncontested monopoly for its “greenbacks”; and national currencies have been breaking up since Nixon took the US dollar off gold in 1971. This is the underlying cause of Europe’s “never-ending crisis”, just one aspect of a world society now stranded between failing nation-states and the absence of a global alternative.

The current break in history goes far deeper than the postwar replacement of developmental states—from socially responsible capitalism in the US through social democracy in Europe to socialism and communism in the Soviet bloc and the independent former colonies—by a market fundamentalist counter-revolution. Since the mid-nineteenth century national revolutions, there have been two phases of financial imperialism, each lasting four decades. The first was ended by what Churchill called “the second thirty years war” (1914-45); the second is ending now.

The financial crisis since 2007-8 is only superficially a question of credit boom and bust. The first ever global debt crisis will be liquidated soon and an even greater dperession will be its consequence. Whereas economic collapse and world war were separated by a decade in the 1930s, we face the possibility that they will coincide now.

The conversion of the whole world to free market capitalism from the 1990s (“neoliberal globalization”) launched the digital revolution in communications. Wall Street exploited these possibilities. After the “dot com boom” crashed in 2001, low interest rates fueled speculation in property. American bankers discovered that issuing mortgages and credit cards to people with little or no money produced larger profits than lending to people with more money, often much more of it—through higher interest rates, fees for slow payment and assets seized in default. Packaging these debts with sounder loans in high-rated securities for sale in global capital markets—“sub-prime mortgages”— generated an unprecedented financial bonanza.

The banks insured against bad loans using mysterious instruments like “credit default swaps” and “collateral debt obligations”. Leverage rates escalated as the bubble picked up steam. Some financial corporations, especially the AIG insurance group, became wildly over-exposed. The expectation of permanent profit (“this  time it’s different”) favored computing models that did not factor in a possible decline in housing prices.

After the Lehman crash of 2008, European governments made less rigorous attempts than the US to make their banks reduce their toxic assets. The sovereign debt crisis in Greece, Portugal, Ireland, Spain, and Italy escalated. Implausible  proposals to manage new threats to the euro became commonplace—for banking and fiscal union with teeth, for example. Financial markets hung on each negotiation, while heads of state pinned their own re-election chances on Germany saving the euro.

The future surely lies with regional trade federations rather than with nation-states aiming at economic self-sufficiency. But Europe is becoming ever more fragmented and fractious, while the rule of unelected bureaucracies has become  more imperious and the economic gap between its regions has grown. Europe faces a long and painful adjustment to a radically diminished place in the world. A more realistic political debate concerning its future is sorely needed.

Politics is still mainly national, but the money circuit is global and lawless. Even so, new money forms will be necessary to make a world society. National capitalism has been unraveling since the US dollar went off gold in 1971; a new regime of floating currencies soon emerged; and money derivatives were invented in Chicago a year later. The need for international cooperation grows inexorably, but the incompatibility between world economy and nation-states undermines effective political and legal solutions. The regime inaugurated by the neoliberal counter-revolution of 1979-80 remained largely untouched by the 2008 financial crisis.

The notion that a national currency is at once a medium of exchange, unit of account, means of payment and store of value—what Karl Polanyi called “all-purpose money”—is now fully discredited. Are these currencies a store of wealth? Hardly. They have long been radically depreciated and may soon be replaced by digital forms controlled by central banks—hence the flight to gold.  As for real estate, the collapse of subprime mortgages got us into the present mess. Don’t ask what credit default swaps and collateral debt obligations are used for or who issues them. The shadow banking system—hedge funds, money market funds and structured investment vehicles beyond state regulation—is out of control.

The euro crisis

In January 2002, the Paris left-wing newspaper, Libération published an editorial, ‘Rubicon’, celebrating the euro launch as a revival of the spirit of the Roman Empire: “Caesar’s march on Rome launched an empire that guaranteed Europe peace and civilization. Europeans have never forgotten that golden age. The euro, true icon of the European dream, resurrects the eternal idea of union in an old continent haunted by its long history of bloody conflicts”. This dream forgets that Roman military conquest imposed Italian colonists on a defeated Gaul before a coalition of Gothic invaders pushed the Romans out of France, Spain and Italy itself. The promise of overcoming fragmented European sovereignty inherited from feudalism did seem at first to be the huge symbolic prize of monetary union. But Julius Caesar made his bid for power with an army. The euro’s premise was that politics would follow free market logic. This neoliberal fantasy still grips Europe’s politics, bureaucracy, and banking; and the ongoing euro crisis is the result.

In 2002, the same year as the euro’s launch as currency, I published an article comparing the euro with the Argentinian peso, then and again now in meltdown. I argued there that the euro’s management was likely to be less democratically accountable even than its national precursors. It aimed to be an enlarged nation-state currency with global pretensions, like the US dollar. The essence of state money is government issuing currency of little or no worth to their people as the sole legal means of exchange and with the obligation to pay taxes on all transactions before exporting it to the rest of the world. The leading central banks once zealously guarded this national monopoly, policing the banks who create most of the money through lending, but now they just keep up asset prices for the benefit of the rich around the world.

Two decades ago I wrote: “The economic destiny of 300 million Europeans is now tied to the fortunes of a single currency whose management cannot possibly meet their varied needs and interests. The constituent governments of Euroland will come under pressure from their own people for more flexible instruments of economic management. The euro cannot do the job all by itself. Europeans may not yet be reduced to the desperate measures of the Argentinians, but they have some way to go before they can rest content with the money forms at their disposal”.

The apparent triumph of the free market after the Cold War induced two huge political blunders, based on the assumption that society should be shaped by market forces, rather than the other way round. Radical privatization of Soviet-bloc public economies ignored the history of politics, law and social custom that gradually built up market economies in the West, so that the Russian economy was delivered instantly to former spies, gangsters, and the managers of soviet collectives and international trade (“oligarchs”) who grabbed as much money as they could before and after the Soviet collapse. At the same time, the Maastricht Treaty proposed a European single currency that was supposed to provide the social glue for political union, without first developing fiscal institutions or economic convergence between northern and southern Europe.

Harold James’ monumental study of the euro’s origins, The Making of the European Monetary Union (2012), identified two unresolved flaws in its formation: Germany’s export surplus and failure to regulate the banks. An even bigger mistake was to replace national currencies with the euro. An alternative proposal, the hard ECU (European Currency Unit, named after a medieval coin), would have floated politically managed national currencies alongside a low-inflation European central bank currency whose model and principal sponsor was the deutschmark.

Countries that didn’t join the euro, like Britain and Switzerland, enjoyed the privilege of this plural option in practice. Retention of a national currency did not preclude participation in Eurozone markets but added political flexibility in an economic crisis. The euro was invented two decades after money was already breaking up into multiple forms and functions.

Issuing money is no longer a monopoly of the governments and banks. A distributed global network of corporations issues a plethora of confusing money instruments. Where are the levers of democratic power now? The political classes who got us into this mess repeat the same mistakes. Politics is a dialogue of the deaf, between those who deny the need for any political regulation of markets and a dwindling band who remain trapped in the outmoded model of state-made money.

Eurozone countries have been denied the option of devaluation, the fairest means of distributing the pain of excessive debt and losses. Their only options are deflation or default. The lessons of the 1930s and knowledge of Keynes’ remedies recommend reflation of demand, not the deflationary austerity policies that are almost universal in Europe today. The ruling alliance of politicians, bureaucrats, bankers and owners of the largest corproations has only one focus—to consolidate their class power at the expense of the citizen body.

The dominant social interest is finance or “fintech.” Politicians are addicted to money; their policies favor the money men at the expense of the electorate, as when French and Dutch voters rejected the Lisbon Treaty only to be ignored, and the Troika (European Commission, European Central Bank, and International Monetary Fund) later told Southern governments in 2015 what to do with unmanageable debt or else.

The few beneficiaries of the credit boom would sacrifice the rest of us to retain their power. In their view, austerity is good for cowing the masses, better by far than undermining the power of money through inflation and regulating capital flows for sure. The appeal to the disenfranchised masses of political strategies hostile to globalization and foreigners is growing rapidly in the West. What is left of “the Left” having first embraced “anti-globalization”, then “alter-globalization”, now falls back on “deglobalization” which would be the death of us all.

The accountancy techniques that would help the Eurozone to correct its internal trade imbalances are simply absent. Germany was a heavy net exporter—until its present ruin from overdependence on Russia and China—and this had deflationary consequences for the rest; yet measuring trade balances between member states is impossible. Germany has now replaced Britain as the sick man of Europe, but France is also in a similar plight. The key problem is the democratic deficit, when governments are only accountable to the creditor class, not their own people. The neoliberal counter-revolution was about overturning social democracy and restoring power to an increasingly self-confident global plutocracy of billionaires, dictators and CEOs. Even the Roman republic passed the Lex Cincia regulating the ability of the rich to influence elections. Now the US Supreme Court protects the political power of the corporations in the name of their “human rights” as individual citizens gained in the late nineteenth century.

Alternative strategies were available, however, even close to Europe. Iceland suffered heavily in the financial crisis when three banks yoked their small island economy to the credit bubble and its inevitable crash. A new government, dominated by women, rejected British and Dutch pressure to repay bad debts incurred in those countries. They let the banks and the currency fail; limited household debt to a proportion of their members’ assets; and put the former prime minister and several bankers on trial. Their economy soon grew at 3% a year—compared with less than 1% in the Eurozone—and the country’s sovereign debt rating was raised by the IMF. The Scandinavian countries and Switzerland showed that democratically accountable governments can achieve the highest rates of economic growth in the world. But the EU is incapable of moving in that direction.

The Eurozone’s economic stalemate has political causes and remedies, but it cannot be resolved if public debate steers resolutely clear of contemporary social realities. Europe’s geopolitical position, internal divisions, external threats, and irrational political economy all point to social breakdown. The EU led the way towards a new political order based on regional trade federations, but its monetarist premises had no room for economic democracy.

The euro crisis pushes Europe’s rulers inexorably along a path of social polarization, between corporate bureaucracy and populations being stripped of the political, legal, and economic powers they won after 1945. It was always wrong to imagine that a single currency would lead to political union, and attempts now to prevent it unraveling again focus on the euro. The problem is the political union itself. Europe’s rulers have grown so accustomed to hiding behind an economic fiction that they have no political solutions. The EU itself, designed to address global economic problems through federation, will inevitably fail and the euro with it.

The euro is a Greek tragedy in both ancient and modern senses. Aristotle’s concept of hamartia (an irreversible mistake) refers to errors people made in the past, often unconsciously like Oedipus, that come to haunt them and their descendants later. Saving the euro hinges on identifying the original mistakes in case their victims can do anything to remedy them. The hamartia in this instance was supposing that a single currency could retain the economic diversity of Europe without being at first deflationary in the weaker regional periphery, but now everywhere. The idea that money could forge political union by itself was fed by the neoliberal dogma that markets can and should trump politics. Hence the failure to account for unequal trade balances between member states, the excessive bets made in credit markets by the French and German banks, the democratic deficit and so on.

These errors are still hardly understood, even less acted on in Brussels, Frankfurt, and Strasbourg. Taken together, they reveal that the EU’s original big mistake is inexorable, whatever tinkering the bureaucrats come up with.

Concluding remarks

The poor countries now seek reparations from the rich countries for their historical exploitation by colonial regimes and before them the slave trade. Redress for past crimes, however, is overshadowed by a much more dangerous threat that has not yet entered public consciousness. Reducing carbon emissions is urgent, but a far bigger problem is the trillions of tons of carbon in the atmosphere put there by the North in the last 150 years. The latter is much less affected by global warming than the tropical areas of the South already are. The scientific and financial means for large-scale reductions of carbon in the atmosphere for storage on the planet are already there, but the political obstacles are immense. Even if Northerners do not care about the peoples of the South and never have, we might be concerned for our own children, already becoming prey to the first fires and floods and with the prospect of having to support the pensions and sick benefits of an inverted population pyramid.

International free trade anchored by the gold standard was the nineteenth century’s answer to the resistance of local landed monopolists to urban industrialization. Our challenge now is to install free movement in the world. Unequal societies fix those they exploit in place where they can be controlled. Movement is the antithesis of this inequality—billions of peasants, slaves and serfs, women, young people, and ethnic minorities have used increased movement to escape this system. Today’s Northern states have accumulated elaborate powers for controlling people in place, but reliance on force to keep out the bulk of humanity is bound to fail.

Apartheid has gone global at all levels of world society as a result. Alexis de Tocqueville, in his last book The Old Regime and the (French) Revolution, identified four causes of the latter: diffusion by new media of Enlightenment thought promoting liberty and equality; rising economic prosperity (not its opposite, impoverishment); rigid social stratification denying the upward mobility that the English aristocracy granted to leading members of the bourgeoisie; and, crucially, screwing the lid of the pressure cooker on tight through increased repression, rather than letting off some steam. In addition to South Africa’s original example, the historical illiteracy of our world’s present rulers offers some hope for humanity now.

If Europeans want to protect their precious national cultures from excessive mixture, they would be better off spending their money helping the South to build up their own economies and fend off climatic disasters, rather than trying to protect their borders from an unstoppable influx of poor refugees caused by disasters that we made for them. Most people would prefer to stay where they feel at home if chances for economic improvement could be made there.

Sven Lindqvist wrote a personal and engaging book on an appalling theme, the history of western genocide. His title comes from Kurtz’s last words in Conrad’s The Heart of Darkness, “Exterminate all the brutes!” The West learned how to kill at distance without risking their own lives. Now genocide in coming home to roost, but most Westerners prefer not to think about it. At least try to save your own children; you might also help to save the world. All it would take is a lot more generosity towards the rest of humanity than we have ever shown in the past or show now.

Further reading

Commentary on my Self in the World: Connecting Life’s Extremes (2022) can be found at ‘Keith Hart’s Anthropology: Auto-ethnography, world history and humanist philosophy’.

This page’s title comes from a B.B. King song. It has essays that you may want to look at:  ‘The Hitman’s Dilemma: On business, personal and impersonal’ is my most general reflection on the present crisis for humanity; it has seven sections. Start with the Conclusions; Chapters 2, 5 and 7 are probably the most interesting for this audience.

‘Money and Markets after Capitalism: A new humanism for world society’ has seven sections.  Its central figure is Marcel Mauss: I am now preparing a short book for studentsand the general public about his relevance for our times, Marcel Mauss: The Man is the Message.

Immanuel Kant launched anthropology as an academic discipline through lecture courses and as a popular best-seller, Anthropology from a Pragmatic Point of View (1798). ‘Anthropology as Humanist Education: Renewing Kant’s vision for this century’ also has seven sections.

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The London Daily Telegraph’s international business editor is Ambrose Evans-Pritchard; his father was E. E. Evans-Pritchard, who was Professor of Social Anthropology at Oxford University, 1946-70. He published this comment on November 10th, 2023:

Europe is slowly destroying itself as it heads for another lost decade: The Continent is doomed to struggle on with its own deformed creation

Followed by this on November 24th, 2023:

Germany’s debt-brake drama is poison for Deutschland Inc and for Europe’s monetary union: The bloc has just become a more fractious and unhappy home for everyone.