Welcome to the Hotel (Euro) — You Can Vote “Oxi” Anytime you Like but you Can Never Leave

The recent events in Greece and their ramifications for the European project have been the subject of a good many blogs and news articles lately.  From an economic perspective the most noteworthy are those by Paul Krugman, Brad DeLong, Dean Baker, Yanis Varoufakis who was on the ground as Greece’s Finance Minister, and Joseph Stiglitz, among others.

If one were to read the news in the manner of the U.S. press through its sources of record: The New York Times, Wall Street Journal, Washington Post, not to mention the major news networks with CNN thrown in (avoiding avowedly polemical sources like Fox, MSNBC, and the Huffington Post), one would think that the Greek issue is one caused by a profligate country that borrowed a bit too much and allowed Greeks to live over their heads.  Nothing could be further from the truth.

The bottom line is that Greece and the EU decided to bail out the banks and investors who crossed the line in investing in junk paper by using public funds.  Sound familiar?  Think a Eurozone TARP.  But in the case of the EU the banks and bad paper investment houses–the inmates in this scenario–run the asylum.  With the constant drumbeat from our own oligarchs we have become as a people brainwashed to think that investors and creditors have a right to their money.  Our own more draconian bankruptcy laws imposed by the last financial industry-tainted Congress institutionalized many of these attitudes in law.  But this has not always not been the case and is not part of our legal or economic traditions.  It is certainly not anything like what Adam Smith had in mind.

The operational term in this case is “moral hazard.”  The rhetoric of the moneyed interests and their armies of lawyers have deftly tried to invert the meaning of the concept, but as Steve Waldman clearly explains in his excellent interfluidity blog, “moral hazard” is a concept that overwhelmingly falls on investors and creditors.  It means, quite simply, that you as an investor are responsible for where you put your money at risk–and that risk includes it being completely lost.  There are no guarantees.  This was the original rationale of Glass-Steagall: it was accepted that regular working people don’t have the information, time or resources to place their funds, which are meant for savings, under moral hazard.  Same goes for things like the Social Security Trust Fund.  Play with your own “play” money if you have it, but guaranteed deposits and retirement pensions are off-limits since they are backed by the sovereign currency.  Seed corn is not open to being manipulated by cheap paper–that is, until Glass-Steagall was repealed.

The European condition is a bit more complicated only because the EU has never had a consistent separation between its financial elites and civic institutions, given the differences in national traditions and political systems.  But one should be able to clearly see the connection between what is happening in Europe within the EU and in other places around the world: the attack on democratic legitimacy by oligarchs and economic elites.

As Joe Stiglitz points out in the post cited above, Greece–emerging from years of autocratic rule and third world-like conditions–was doing quite well economically until the financial bubble burst across the developed western world.  Many of the banks that invested in hyper-inflated Greek real estate and other development projects were situated in other countries.  The EU under the Euro project is a currency union, and under the Maastricht Treaty that formed this union there were some economic harmonization rules required, mostly pushed by Germany and France, but there is no lender of last resort, no central banking authority equivalent to our Federal Reserve, no centralized budget authority, nor political or cultural ties that would keep old ethnic or nationalist conflicts from flaring up in a crisis.  As Waldman explains, what these other countries did–in particular Germany–was to bail out the banks and investment houses making the debt on these bad investments public obligations.  This sleight of hand politicized what should otherwise should have simply been written off bad investments.  If the Germans wanted to have their own TARP they should have done so.  But it was so much easier to push the consequences onto the Greeks given their weaker position in the EU.

Jared Bernstein in his Washington Post article following the Greek “no” vote quoted an unnamed German economist asserting: “How do you think the people of Manhattan would like bailing out Texas?”  As Krugman rejoined upon reading the article, Manhattan (and other areas of the country) do that all the time as a matter of course.  It was done during the Savings & Loan crisis that was largely a Texas affair back in the late 1980s.  Anyone who looks at the net benefits of federal tax payments and expenditures by state can see that the southeastern states–in particular those that made up the old Confederacy, including Texas, get more in federal benefits than they pay in.  To Americans this is not a big deal–and my use of the term American to identify my countrymen is at the heart of the question.  I don’t know anyone who in reality is a Floridian.  Only buffoons and idiots identify themselves as Texans over their identity as Americans.

Here we tend to put resources where they are needed, hence the United States of America.  More than two hundred years involving waves of immigrants, over one hundred and fifty years of increasing population mobility, and two major world wars and a cold one–two of these existential in nature–during the 20th century, not to mention 9-11, has militated against the old regionalism.  It is not surprising that the assertion that displays such deep ignorance of our own system and society would come from a German economist.  I mean this as no mean insult.

When I was on active duty as a young U.S. Naval officer I met a Scottish couple in Spain who worked at the U.K. embassy there.  They were amazed by my nonchalance in moving my family from California to a home base in Virginia as part of my assignment.  “Do you now identify yourself as a Virginian?” they asked.  When I explained that–no–it was all part of the U.S., they explained that they would always identify themselves as Scots, and that within Scotland that people associated themselves with a particular village or region.  This was almost 30 years ago, and I am told that such attitudes are changing, but it does point to a weakness in the “European” project, especially given that in the most recent U.K. parliamentary elections that the Scottish nationalist party was overwhelming elected to the House of Commons.

Given my own expertise in history and political science, my concern is directed more to the consequences of Greece capitulating to the EU’s economically and politically disastrous demands.  Just ten days ago 60% of the Greek people voted against the conditions imposed by the EU, yet their parliament just approved a package that is punitive by any reasonable and objective measure.  Even the IMF has belatedly–and in a largely dishonest manner which I can only explain as some type of EU face-saving approach–clearly stated that the conditions imposed are unsustainable.

The role of Germany is certainly one of the main issues in this condition.  Given the way they handled the bad paper of their bankers, Merkel and her party have backed themselves into a corner.  So they have done what all desperate politicians do–they have demonized the Greeks.  This is all for mercenary purposes, of course, and without consideration for the long term consequences for both the Greek people and the EU.  What they have done is show the contradictory fault lines in the entire “European” project.  German Finance Minister Schaubel, by attempting to co-opt the Greek threat of a Euro exit by making such terms seem disastrous, has inadvertently made such an exit virtually inevitable.  Greece, not wanting to be left out of “Europe” has just voted against its own best interests, its government never really having a strategy for a “Grexit” because they assumed that their negotiating partners were both rational and well-meaning.  The government very well may fall as a result.

For what the Greek crisis has shown is that the European project under the Euro is neither a completely democratic one nor is it “European.”  The elites in Brussels certainly felt that they had no obligation to consider the Greek referendum on the bailout terms.  To them only the banks, the oligarchs, and the political survival of the political parties in the main assemblies of the nations that support them matter.  The “democratic deficit” of the EU, in the words of the late historian Tony Judt, and the damage that it can cause, is now on full display.  It is not yet clear what will happen, given the contradictory impulses of countries wanting to stay within the single market that “Europe” afford them, the cultural and psychological association to be part of the project, and the punishing loss of national autonomy and democratic legitimacy as the price that must be paid. (Aside from the economic depression and poverty conditions imposed by the EU as the Greeks follow the conditions imposed on them).

One final note:  I can’t help but be impressed by the ideological arguments being used as a matter of course for “helping” the Greek people in the long run.  As John Maynard Keynes noted, in the long run we are all dead.  The tremendous amount of suffering imposed by the EU on the Greek people for their own long-term good sounds much like the fabrications of the old Communists of the former Eastern Block countries who inflicted all sorts of horrors on their own populations for the “long term” good of reaching the perfect socialist state.  Now such arguments are deployed in favor of the perfect capitalist state.  It is “reform” turned on its head, like “moral hazard.”

 

 

 

 

Sunday Contemplation — Finding Wisdom — Barbara Tuchman

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“An event of great agony is bearable only in the belief that it will bring about a better world. When it does not, as in the aftermath of another vast calamity in 1914-18, disillusion is deep and moves on to self-doubt and self-disgust.”– Barbara Tuchman

Barbara Tuchman was an earnest historian.  She began her career as a journalist and worked assignments in Japan during the Shōwa period and witnessed the rise of nationalism and the military state there.  Afterward, she became an editor at The Nation, working as a war correspondent covering the Spanish Civil War.  Thus she bore first hand witness to and recorded the history that unfolded before her during one of the most tumultuous and tragic periods of human civilization.

Later in life she turned her full attention to history, and it is there that her full talent revealed itself.  She is known for a trilogy of books about different topics concerning the period prior to and during the First World War.  These are The Zimmerman Telegram, The Guns of August, and The Proud Tower.  She also penned a comprehensive history of China’s convulsive period from 1911 until the end of the Second World War conjoined with how these events were seen through the eyes of an energetic U.S. Army officer in the book Stilwell and the American Experience in China, 1911-1945.  For both The Guns of August and Stillwell she was awarded the Pulitzer Prize.  Other books of note include A Distant Mirror:The Calamitous 14th Century, The March of Folly: From Troy to Vietnam, and The First Salute.  She received the National Book Award for A Distant Mirror on its paperback release–a strange practice of revisiting worthy but overlooked books on their initial hardcover release that has since been discontinued.

For me the books that focus on the period leading up to and including the First World War–the trilogy listed above–combined with Stilwell serving as epilogue, provide the most intelligible record of a largely incomprehensible period of human history.  These books speak to us on many levels for not only do they record specific events and times, they also explore the depth of the bottomless well known as human folly.  Like Hannah Arendt, she approached history and tragic events in an unconventional manner, applying irony–much criticized lately–as an effective device in highlighting the foolishness of human actions and the frailty of human existence.  For example, in noting the epic tragedy of the First World War with its endless trench warfare and blind charges into fortified positions that produced such horrific results she observed:  “Human beings, like plans, prove fallible in the presence of those ingredients that are missing in maneuvers – danger, death, and live ammunition.”

More immediately, it has become increasingly clear since the fall of the Soviet Union in 1991, that the politics, social upheavals, and decisions made during this period continue to loom over entire parts of the globe today.  It is almost as if the bipolar post-World War II Cold War construct had been but a constraining and moderating blanket which, when lifted, allowed all of the built-up hatreds, ethnic and religious animosities, nativism, anti-democratic economic oligarchies, and nationalistic and jingoistic ambitions to rise to the surface once again.  We have seen, as a result, tragedies in our own times from these poisons rising to the surface: the dissolution and unraveling of Yugoslavia leading to the ethnic cleansing in Bosnia, Herzogovina, and Kosovo; the widespread upheavals across the Arab world and the Far East, the rise of fundamentalist and militant sects in almost all areas of religious faith, wars of genocide in central Africa, the reemergence of animosities between China and its neighbors, and the rise of Russian imperialism in Europe under a new banner.  Here at home, as in other Western nations, we have seen the rise of political movements and economic elites that would turn the clock back to 1914 and before.  Given such developments it is here too that Tuchman informs.  “Learning from experience,” she wrote, “is a faculty almost never practiced.”  But learn we must, and apply the experience of other generations to allow us to avoid in our own times errors and follies whose consequences, given the ability of modern technology to extinguish human existence, would be much more tragic.

If we begin with The Proud Tower we enter a world in which we trace the strains on civilization that eventually led to the tragedy of 1914.  Beginning its narrative in 1890, the book illustrates the period in unexpected ways through the fog of time.  In the words of the author: “(this is not) the book I intended to write when I began. Preconceptions dropped off one by one as I investigated. The period was not a Golden Age or Belle Epoque except to a thin crust of the privileged class. It was not a time exclusively of confidence, innocence, comfort, stability, security and peace. . . . Our misconception lies in assuming that doubt and fear, ferment, protest, violence and hate were not equally present. We have been misled by the people of the time themselves who, in looking back across the gulf of the War, see that earlier half of their lives misted over by a lovely sunset haze of peace and security. It did not seem so golden when they were in the midst of it.”  Ms. Tuchman’s admission to having to strip herself of her preconceptions of the period is no mean feat.  This is the essence of intellectual honesty and, as a result, we find insights and honesty throughout its observations and conclusions.  Thus, we learn much about the past and are left to draw our own lessons from it–a period in history that was in rapid transition that few of its leading citizens outside of the arts seemed to note.

Ms. Tuchman’s magnum opus is The Guns of August.  Here she traces all of the trends and personalities involved in the disastrous decisions that led the world to war.  She begins her narrative with the funeral of Edward VII of England in May of 1910.  World leaders met to pay their last respects to the son of the queen whose own rule was short compared to that of his mother–Queen Victoria.  What we see is that so many of the major powers of the world are still ruled by kings, queens, czars, and emperors–a world very much different from the one we know today.  This knowledge informs our perspectives in reading other histories of the 20th century, particularly as it relates to Europe, in understanding that even in the 1920s and 1930s, in the wake of the Great War, that many people had narrowed their choices between competing authoritarian and totalitarian ideologies: Communism and Fascism.  Coming away from the funeral in 1910, former U.S. President Theodore Roosevelt came away from his visit, having seen the strains and ambitions expressed by the assembled leaders, convinced that Europe was on the brink of war.

Roosevelt, more than anyone, was an astute observer and an historian in his own right.  By 1910 the Eurasian nations were aligned through pacts–some secret and some not so secret–established for the mutual protection of the parties involved.  The Proud Tower chronicled the ceremonial hand waving at the peace conferences prior to the Great War that were attempts to establish an international security framework in lieu of military alliances.

Furthermore, the nations of Europe had developed some deep-seated prejudices and assumptions about their neighbors.  The Germans, for example, had successfully invaded France in the Franco-Prussian War.  It is this war that led to the unification of Germany under Bismark, social upheavals in France, and French designs to retake its lost territory of Alsace-Lorraine.  The French had constructed fortifications along the corridor of the previous Prussian invasion, causing the German general staff to develop a plan to go around those fortifications by attacking France through Belgium.  This plan did not take into account Great Britain’s historic guarantee of Belgian sovereignty.  The French for their part believed that “elan” and Napoleonic daring could overcome the firepower and bullets of modern weaponry.  The Germans also viewed Russia as a weakling and its leadership incompetent.  This view was reinforced by its losses to Japan in 1904-05.  Austria-Hungary, which viewed itself as the bulwark of western civilization against the east, had designs to expand its influence, particularly in the Balkans.  Russian for its part still smarted from its humiliations.  As with every repressive regime, it looked to foreign enemies to quell its internal instability.  It found these enemies in Europe and espoused a pan-Slavic ideology to claim areas of influence over large swaths of Eastern Europe, the Balkans, and the Baltic states.  Add to this the colonial holdings and ambitions of the major European powers, as well as Great Britain’s role as enforcer of the world order, and you have the ingredients for world war.

Thus, the Germans backstopped the Austrians and viewed itself encircled by enemies in France and Russia, France and Russia guaranteed the security of the other, Russia was allied with Serbia, Austria-Hungary felt secure in its alliances with Germany and Italy, and Great Britain and its Commonwealth was obligated to support Belgium and France.  It was this system of pacts, alliances, hostilities, and prejudices that Roosevelt observed and which set the dominoes in motion after being given a push.  For any high school student paying attention the assassination of Grand Duke Ferdinand in Serbia was that push.  Automatically and without thought, the parties acted as if they could not intervene in their own unfolding events.  When the war, particularly along the Western Front, ground to a stalemate the parties involved refused one after another to stop the carnage that was to consume an entire generation for another four years.  Tuchman tells this story in gripping detail, all the while keeping her eye on the facts and larger events.  Her literary style, and narrative voice keep the reader engaged in understanding the otherwise confusing motivations and actions.  It is this ability that defines the book as a magisterial work.

In The Zimmerman Telegram, Ms. Tuchman traces the U.S. entry into the Great War.  The book traces the discovery and release of a telegram from German Foreign Secretary Arthur Zimmermann to Germany’s Ambassador to Mexico, Heinrich von Eckardt in 1917 to convince Mexico to engage in war with the United States in order to keep the country out of Europe on the side of the Allies.  As unlikely as this situation seems to modern readers, the history of relations between the United States and Mexico were very strained, particularly during this time.  Mexico had undergone a series of revolutions beginning in 1910, one unauthorized overthrow even being fostered in 1913 by the U.S. Ambassador to Mexico with the instigation of U.S. industrialists who had invested in the country.

As a result, tensions between the countries rose, especially when President Woodrow Wilson attempted to undermine the dictator Victoriano Huerta, who had been installed by the U.S.’s own rogue ambassador.  Tensions continued to rise as Emiliano Zapata launched a revolution to the south and Pancho Villa waged a revolutionary war in the north along the U.S. border, creating chaos throughout Mexico.  Hoping to destabilize Huerta, President Wilson launched a naval occupation of Veracruz upon the unauthorized arrest of American naval personnel in Tampico and Veracruz.  American forces eventually ceded Veracruz back to Mexico.  But another American incursion occurred after Pancho Villa crossed the border and attacked and pillaged the New Mexico town of Columbus in order to resupply his forces after a devastating defeat.  From March 1916 to February 1917 General John Pershing launched a punitive expedition into Mexico with the intent of capturing Villa, which it did not do.  But U.S. forces did manage to destabilize Villa’s forces in the north and secure the border.

Against this backdrop of impending war with Mexico, the Zimmerman Telegram emerged, and with it the attention of United States public focused on the actions and machinations of Germany.  Germany’s Foreign Secretary’s proposal, which Wilson released to the U.S. press, had an explosive effect, especially when it was suggested that in the resulting peace that Mexico would be given back its lost territories of Arizona, New Mexico, and Texas.  While historians have argued, since the book’s publication in 1958, that the U.S. likely would have gone to war with Germany in any event for its unrestricted submarine warfare and the loss of American and civilian lives that resulted, the Zimmerman telegraph probably pushed President Wilson to break his 1916 pledge to keep out of the war and negotiate a peace among the parties.  It also resulted in a number of immigration and other discriminatory legislation being passed against both Mexican and Japanese immigrants.  Ms. Tuchman outlines the cryptographic details, German duplicity and arrogance, and the resulting ramifications in her signature lucid and honest prose.

Finally, in Stilwell and the American Experience in China Tuchman hints at the frustration and regrets of American shortcomings that would increasingly frame her later writing.  Through the eyes of General Joseph “Vinegar Joe” Stilwell, staff officer to the American Occupation Zone in Shanghai and America’s roving intelligence officer in China from 1934-1940, she traces the American fascination with and idealization of China as an emerging democracy shaking off the binds of colonialism.  Central to Stilwell’s activities are his support for Chiang Kai-shek as the inheritor of Sun Yat-sen’s dream of a Chinese republic.  In particular, his efforts focused on the China-Burma theater in establishing logistical operations to aid the Chinese army in resisting the Japanese invasion.  In the end, however, Stilwell was given the minimal amount of support, both logistical and political, and so could neither provide enough support to make Chiang’s army effort nor to force Chiang to change his corrupt ways.  In the end Stilwell’s mission is a failure and Tuchman expresses all of the disillusionment and disappointment that can be mustered when an opportunity is allowed to pass.  It would not be long before the new post-war American right wing would be looking for scapegoats for “losing China.”  Tuchman’s book, however, shows that it was never ours to win or lose.

Taken together, the common theme throughout Tuchman’s books is how individuals and nations delude themselves into believing a narrative that parts with reality.  As she would write in A Distant Mirror, “When the gap between ideal and real becomes too wide, the system breaks down.”