Former UK Ambassador Charles Crawford considers the EU’s structural deformities

Back in 2012 as the eurozone crisis meandered from bad to worse in the general direction of calamity, trenchant US commentator Mark Steyn tried to make sense of it all:

“This structural deformity in the life cycle of Western man is at the root of most of our problems. Staying ever longer in ‘school’ (I use the term loosely) leads to ever-later workplace entry, and ever-later (if at all) family formation. Our generation is running up debt that will have to be repaid by our shrunken progeny.

One hundred Greek grandparents have 42 Greek grandchildren. Is it likely that 42 Greeks can repay the debts run up by 100 Greeks? No wonder they’d rather stick it to the Germans.

But the thriftier Germans have the same deathbed demographics. If 100 Germans resent having to pick up the check for an entire continent, is it likely 42 Germans will be able to do it?”

Good questions.

When the Cold War ended and the eurozone was set up as a massive stride forward in European integration, one of the key problems was selling the idea to an uneasy German public.

Germany had grown from the rubble of 1945 into Europe’s biggest economy in good part by relying on Honest Money: the stern Deutsche Mark. The horrible memory of Germany’s hyperinflation in the early 1920s lingered on: in November 1923 one US dollar would buy 4,210,500,000,000 German marks (approximately).

Germans therefore wanted iron guarantees that they would not lose out by giving up the Deutsche Mark in favour of this new fangled euro. In particular, they did not like the idea that ‘their’ currency would be shared with other European countries to their south whose ideas of discipline, hard work and respect for rules might be, ahem, a bit too ‘flexible.’ Germany must avoid being the sucker of last resort, subsidising the fecklessness of others!

Germany’s leaders and experts took these concerns seriously. They toured Germany to address public meetings to assure the public that under the robust rules of the eurozone the euro would be just as strong as the Deutsche Mark. Verily, they proclaimed that the rules were so tough that the whole project slowly but surely would make less disciplined EU member states cast aside their idle ways and become more like Germany!

Here’s something very few people know. That wasn’t true.

As the Greek eurozone crisis started to accelerate, one of the German officials right at the policy heart of the eurozone project, and who had taken part in these public meetings, glumly told me a dirty secret.

The eurozone architects had devised strict economic criteria for countries to join the eurozone, to make sure that the currency was launched on a rock-solid basis. To their dismay, they had discovered that Belgium did not meet all these criteria. Yet it was unthinkable that the euro be launched without Belgium as an EU founding member and Brussels as Europe’s symbolic capital. So a furtive fudge was done to allow Belgium to join. Hurrah!

In other words, right from the outset the eurozone was constructed on false promises. Should the Greeks be blamed for sensing these ambiguities and pushing their luck by lying about their public finances when they joined the eurozone some years later? Who can say? But here we are today, with one impossibly expensive and acrimonious existential crisis after another.

In 2011 I wrote about the European Union here at Diplomat for the first time:

“A former diplomatic colleague of mine, a senior British expert in (and fan of) EU processes, once bewailed my incessant questioning of the basis for European integration: ‘The problem with you is that you always argue from first principles!’ True. But what other principles are out there? If you point out that an imposing house is built on weak foundations, why is that a problem and not a public service?”

The fascinating thing about the eurozone crisis is that while you can’t work out what those first principles are, you do know that they take you right to the deep dark heart of human nature itself.

Not telling lies is obviously one of them. But what about trust, forgiveness and responsibility?

The European Union at its heart reflects a tension between market disciplines and the so-called ‘European social model,’ as expressed through ‘European solidarity.’ This latter idea is never pinned down. It suggests that those countries who for whatever reason ‘lag behind’ have an overriding moral claim to generous and unrelenting support from those more fortunate than themselves.

But what is the precise nature of that moral claim? If rich EU member A agrees to help not-so-rich EU member B, is A entitled to put firm conditions on that support? What if they are not then met? What if EU member B squanders that support but then clamours for more? Should EU member A throw yet more money at EU member B, or instead direct it at even less rich EU member C, who (so far) is behaving responsibly?

What if rich EU member A cheats now and again? Does that mean that EU member A has no right ever to demand sacrifices from poorer EU member B when EU member B cheats a lot? Is morality between countries different from morality between people? Not really.

This is why some former communist countries that are now members of the eurozone have been first in line to demand stringent conditionality for Greece. We have been through a lot worse than this. We have taken our medicine. You do so too!

Remember the Bible parable of the Prodigal Son who squandered his fortune but finally saw the error of his ways and crept back home? He was warmly welcomed by his father, who explained his decision to an older brother unimpressed by the precedent being set: “This brother of yours was dead and is alive again; he was lost and is found.”

The moral force of this story comes from the fact of the erstwhile wastrel’s sincere repentance, and his father’s willingness to accept it at face value. A new deal is in effect struck. In return for the son’s unambiguous willingness to work hard to put things right, the father welcomes him back and treats him well. The Bible does not say that the wastrel is ‘entitled’ to carry on sponging off his relatives indefinitely or that they have to show him unqualified ‘solidarity’.

So as we look at Greece’s fevered manoeuvres to persuade partners and markets to lend them yet more money to stave off disaster, the issues facing EU leaders as they glare at each other across the table boil down to these questions:

Is Greece serious about abandoning its wasteful ways? Can Greece in fact abandon its wasteful ways? What if it does everything it can, but that still does not make Greece meet eurozone standards?

Back to Mark Steyn. If he is right, the underlying demographic logic of the situation means that Greece is in such a state that it can’t be fixed by any normal policy measures. Unfortunately for Greece and the rest of us, Austria’s steely Mises Institute has tried to work out who pays for what in Greece and agrees with him:

“The numbers imply that 67 per cent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible as the 67 per cent have strong incentives to continue to vote for the other 33 per cent – and also foreign entities – to cover their living expenses.”

That sounds right. Once you get hooked on the idea that the state is going to do lots of things for you (and that when things go wrong the plump Germans always pay) why vote for something risky such as taking more responsibility for your own life?

King Willem-Alexander of the Netherlands used his first speech to Parliament in 2013 to make the case for a huge change of course in the way we look at things:

“As a consequence of social trends like demographic ageing and internationalisation, our labour market and system of public services no longer fully meet the demands of the 21st century …

The classical welfare state is slowly but surely evolving into a participation society. Everyone who is able will be asked to take responsibility for their own lives and immediate surroundings.”

Hmm. Risky! But what if there is no alternative? And what if the European Union can’t in fact make the changes needed to move in this noble direction?