Farewell to Europe

Giants and Pygmies

By Clyde Prestowitz

All my life I've been a Europhile. My dad worked for a Belgian company. I was a high school exchange student to Switzerland in 1958. My first posting as a Foreign Service officer was as vice consul to Rotterdam. I lived in Brussels for five years in the 1970s as head of Scott Paper Company's European marketing operations. I take my family to Europe frequently and maintain a wide range of work and other activities there.

Through all the vicissitudes of mid-night negotiations, I admired the dedication and vision of the negotiators who were building the European Union. I believed in the vision of a united Europe and welcomed the advent of the Euro as a major step along the way. When the recent crisis first broke three years ago, I welcomed it, thinking that surely it would be a catalyst for Europe to move to full financial integration and to greater political integration on the way toward realizing the vision of a truly united Europe.

I was wrong, and I have come to realize that my dream of a united Europe a la  the United States, is not the European dream. Indeed, with great disappointment I have at last concluded that there is no European dream because a las those whom we on the outside call Europeans are not and don't want to be Europeans.

I spent part of last weekend with a group of leading intellectuals from various European countries. The Germans were firm in their conviction that the primary cause of the EU crisis is the laziness, profligacy, free rider attitude, and mendacity of the so called Peripheral Countries ( Spain, Portugal, Ireland, Italy, Greece, and even maybe France), especially Greece, Portugal, and Spain. They emphasized that Germans believe in paying their way, in spending prudently, saving, investing, producing, and maintaining sound money and strong currencies.
They attributed Germany's economic success of the past decade wholly to the dedicated pursuit of these virtues. Conversely the problems of the others were blamed largely on their failure adequately to observe the German virtues. Did they realize that Spain's government budget deficit and debt as a percent of GDP had been less than Germany's? Yes, in some cerebral way in their heads they did, but not in their gut. Did they realize that the German banks had been major lenders to and facilitators of the peripheral real estate bubbles whose collapse precipitated the crisis? Again, yes, but only in a kind of theoretical way. There was clearly no conviction that that was a primary cause of the problem or that keeping the German banks whole might have been an on-going drag on the recovery of the peripheral countries. Was there any understanding that for Germany the Euro is actually undervalued (compared to what a free standing Deutsch Mark would be valued at) and that much of Germany's export success is due to that? Absolutely not. No, Germany's success was seen as entirely due to hard work and financial virtue.

My companions saw the solution very much in terms of continued enforcement of strict austerity and achievement by the peripheral countries of fiscal and trade surpluses by dint of reducing wages, employment, and costs. None of them were interested in achieving a European banking union or any other kind of arrangement that would result in German money being used to support Europe-wide obligations.

That, of course, is the way Chancellor Angela Merkel played it over the weekend with regard to the provision of assistance for Greece in order to enable it to avoid default. The Greek situation is truly a vicious circle. Austerity has led to dramatic shrinkage of the Greek economy which means that the debt as a percent of GDP is actually climbing rapidly despite the loans and other measures that have been taken in an effort to relieve and re-generate the Greek economy. The Greek situation is getting worse, not better. Everyone at the weekend meeting which included International Monetary Fund head Christine LaGarde knew and knows that the half measures agreed upon will not be enough. Everyone knows that there will have to be debt relief for Greece somewhere along the way. But German politics don't allow Merkel to face that reality right now, and she is not the kind of leader (one thinks of Helmut Kohl) who tries to shape and guide public opinion as opposed to following it.

Nor is it only a matter of German attitudes. The UK has always run hot and cold on Europe. At the present moment, it is running perhaps colder than ever in the past. Prime Minister David Cameron and his ruling coalition only want to be part of the EU as long as it leaves the UK more or less completely autonomous without having to pay any costs or having to accept any regulations. The betting among my sources is that the UK will be out of the EU within a couple of years.

As for the French, along with the Germans the main historical drivers of the EU, they now seem bent on doing everything possible to turn France into a true Peripheral country.  The new President, Francois Hollande, spent the weekend telling Arcelor-Mittal Steel  Company CEO, Lakshmi Mittal that if he didn't renege on plans to close two old, inefficient blast furnaces that are part of a steel complex in Florange and thereby lay off 600 French workers, the French government would nationalize the whole complex and attempt to sell it to someone else. Somehow, this didn't seem at all in the spirit of the recent French government sponsored advertising program to attract investment to France with a lyric that runs: "say yes to France."

I guess that Lakshmi Mittal is going to say "no" to France.

But what I really regret is the fact that the giants who built the EU are now gone, and the pygmies who have taken their places are all saying "No" to Europe.