Germany, dominating the eurozone without being very keen to do so, is damned if she does and damned if she does not
Innate qualities
and disciplined economic management earned Germany a solid position, the envy
of most of the eurozone, and accusations of selfishness for not sharing her
good fortune more readily with others, notably with the Southern tier of Europe
that is having a hard time under the overload of its excessive debt.
Few people pretend
to be wholly unselfish—the really unselfish probably least of all. Selfishness
in oneself is not really shameful where good reasons to pardon it are easy to
find. It is in others that it is blame worthy and a source of deep indignation.
This indignation is one part in the mixture that fuels our demand for social
justice and solidarity on the part of the better off.
Envy works
differently, though it works to the same end. It is one of the instincts most
people have and yet very few will confess it even to themselves, let alone out
in the political arena. As it is shameful to admit it, it finds expression in
some more noble disguise, such as the rejection of inequalities. This
sentiment, joined to the condemnation of the selfishness of others, saves the
notion of social justice from running on empty. Coveting the money and goods of
the more fortunate explains the persistent claim for redistribution between
classes in a country and lately also between richer and poorer countries .
It does so even
without supposing hypothetical social contracts or agreements on a norm of
equality. Covetousness completes the amalgam that suffices to give meaning to
social justice that would otherwise have to seek it in contestable metaphysical
speculations.
In his classic
book Envy,(1) the Austrian sociologist Helmuth Schoeck
makes the somewhat unexpected point that envy is rather a good thing because it
makes for social stability. The envious represent a threat to the person they
envy. The latter is therefore well advised to avoid provoking them and not
flaunt his accomplishments, his superior talents, and his wealth. Ostentatious
consumption will breed hostility, while measure, taste, discretion, and the
other hallmarks of breeding and self-discipline will blunt it. Thus envy leads
to better behaviour and less strife.
Schoeck's
interesting claim seems to apply well in a distant past, but is not a good fit
for the democratic present. In the "state of nature" before the
emergence of conventional rules of behaviour, and in particular before the
organisation of a central state with specialised law enforcement, the envious
may beat up their victim, burn his house, and drive off his cattle. Their
threat is altogether tangible. With the state policing their behaviour most of
them have to content themselves with hating the envied person, who may shrug it
of with the standard consolation that "sticks and stones break no
bones". However, he is now under a graver threat. His talents, success,
and superior income will now be noticed and punished by the fiscal apparatus of
the state. The fisc is not appeased by good breeding and discreet behaviour,
hence for the tax payer there is no material incentive to behave with good
taste.
Since fiscal
policies always have some effect upon the electoral chances of a democratic
government, they will always contain some more or less substantial component
that panders to the envious by hitting the enviable. France's freshly installed
socialist government has made blundering attempts, including a 75 per cent
marginal rate of income tax, to cheer up the envious at great cost to the
investment climate and with little prospective gain to the public finances.
Efforts are now made to backpedal and partly to undo these rather silly
measures, but the harm to confidence has been done.
But the money is
there...
Such pandering may
well be a recurrent feature of democratic public finance, but at present it is
dwarfed in importance by the greater and graver questions of economic
stagnation and mass unemployment, the persistent budget deficits of the
Southern tier of European states, and the medium-term threat of their actual
insolvency, all closely tangled up with the future role of Germany as the
saviour, and the survival or eventual liquidation of the eurozone.
All strata of the
societies concerned feel the pressure of these malfunctions, the lowest
suffering the most. Greek pensioners, the unemployed youth of Spain and France,
and the small businessmen hanging on by their fingertips all over Europe are
looking at a bleak present and quite likely a still bleaker future. Higher
strata suffer no material hardship, but are profoundly discouraged.
For some years
past, sporadic explanations of this "crisis" have been launched,
mostly from the conservative and liberal Right. It has been said that Europe's
welfare apparatus has been expanded way beyond what the societies concerned
could afford. Governments had chosen to look the other way as the cost of
welfare entitlements and public goods ran ahead of revenues, deficits
accumulated, and the national debt mounted to an ever higher proportion of GDP.
The Public is now been asked kindly to agree that even benevolent government
cannot spend the money that just isn't there.
However, for the
economically illiterate part of the public, this message was and remains
intrinsically false. It is a forked-tongue attempt to do them out of their
rights. Clearly and obviously, the money is there. The government is spending
it by the billions every working day. It is on tap. Instead of turning the tap
off on a complicated pretext having to do with primary deficits, service
charges, bunched maturities, and rating agency judgments, the government must
simply honour its commitments to those who most need it, and keep the money
flowing from the giant tap that is the state.
The economically
less illiterate strata sees matters in a more complicated, but not necessarily
more valid, terms. They can figure out that if the budget deficit is 5 per cent
of GDP year-in, year-out and GDP grows by 1 per cent a year, the national debt
will rise by 4 percentage points of GDP year-in, year-out, and the higher it
gets, the more of GDP is eaten up by the service charge and the greater the
load the younger generation will have to carry during its lifetime. The process
must stop sometime in the near future.
The justly famous
Reinhart and Rogoff statistical study (2) showed that once the
national debt has passed the level of 90 per cent of GDP, stopping its further
rise has proved very difficult in the past and is likely to be no less so in
the future. Some doubt has now been cast on the methodology of this study and the
opponents of fiscal austerity are now ready to shrug off the 90 percent red
line, the more so as Britain, Belgium, France and Italy are now past that
danger limit. It is obvious, though, that unless rapid inflation comes to the
rescue and wipes out the debt, states are ultimately limited in their capacity
to carry debt, and must reduce their deficit below their GDP growth (though
not, as some politicians are airily promising to accomplish in the rosy future,
"to reimburse the debt").
It is all the
fault of the Germans
With eurozone
growth in the near term unlikely to be much above 1 per cent, deficits should
be forced down to 1 per cent or less to stop the rise of national debt. This is
simply not on the cards except for the sole country, Germany, which has not
only kept its debt below the danger level but has already achieved a near-zero
budget deficit it originally promised for 2016. The Southern tier eurozone and
France are in deep trouble and need all their verbal virtuosity to show that a
way out of it will be found.
The argument they
unfold is that austerity smothers growth, growth is necessary to permit deficit
reduction, therefore one must avoid austerity if one wishes to reduce deficits.
Countries must allow government spending to go on rising if they want to get
the national debt under control. Unfortunately, putative German
short-sightedness is spoiling this blissful scenario. If anything goes awry
before currently half-broke states regain the safe shore of solvency, Germany
is the only possible pay master to bail them out. But Germans disapprove of
laxity and stubbornly disbelieve that it could work. Selfishly, they obstruct
the easy way to tomorrow's solvency.
When Germany and
France used jointly to run the common affairs of Europe they could pass for
being equal partners in the eyes of public opinion. Since the steep decline of
French potential in recent years, equal partnership can no longer be pretended
even with the considerable tact and patience Berlin has been displaying. France
could now at best be second fiddle.
France, being
French, would not play second fiddle. She must be the leader of something or
other. She has tried to recruit the Southern tier states under her flag, but
neither Italy nor Spain would follow her. They agree that growth is nicer than
fiscal rigour, but they do not see that growth can be conjured up by
anti-German rhetoric.
Exasperated by
failure, France's socialist party has recently exploded a minor stink bomb in a
draft working paper on Europe which contains a fairly ill-mannered personal
attack against Germany's chancellor Merkel. The final version, to be presented
in mid-June, will be purged of the anti-Merkel attack, but the purpose of
marking French panache will have been served. The diplomatic shock across Europe
will leave a deep trace.
Germany,
dominating the eurozone without being very keen to do so, is damned if she does
and damned if she does not. If she is to remain strong she must maintain her
fiscal discipline and try to bring round the weaker eurozone countries at least
to a modicum of the same discipline. The weaker states of the eurozone, on the
contrary, want Germany to become more relaxed, have a less robust balance of
payments, and be a bit more like themselves. It is hard to see how the eurozone
could look forward to an easy time and how this story could end as well as good
stories ought to do. It is perhaps sufficient to be sure that it will end
somehow.
Footnotes
1. Helmut
Schoeck, Envy: A Theory of Social Behaviour.Translated from the
German by Michael Glenny and Betty Ross. (New York, Harcourt, Brace & World
1969).
2. See Carmen M.
Reinhart and Kenneth S. Rogoff, "Growth in a Time of
Debt,"American Economic Review: Papers & Proceedings 100 (May 2010):
573-578. Also Reinhart, Carmen M., Vincent R. Reinhart, and Kenneth S. Rogoff.
2012. "Public Debt Overhangs:
Advanced-Economy Episodes since 1800."Journal of
Economic Perspectives, 26(3): 69-86. Carmen M. Reinhart and Kenneth S.
Rogoff,This Time Is Different: Eight Centuries of Financial Folly(Princeton,
N.J.: Princeton University Press, 2009).
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