Last week, I wrote about the crisis of Islamic radicalism and the problem of European nationalism. This week's events give me the opportunity to address the question of European nationalism again, this time from the standpoint of the European Union and the European Central Bank, using a term that only an economist could invent: "quantitative easing."
European media has been flooded for the past week with leaks about the European Central Bank's forthcoming plan to stimulate the faltering European economy by implementing quantitative easing. First carried by Der Spiegel and then picked up by other media, the story has not been denied by anyone at the bank nor any senior European official. We can therefore call this an official leak, because it lets everyone know what is coming before an official announcement is made later in the week.
The plan is an attempt to spur economic activity in Europe by increasing the amount of money available. It calls for governments to increase their borrowing for various projects designed to increase growth and decrease unemployment. Rather than selling the bonds on the open market, a move that would trigger a rise in interest rates, the bonds are sold to the central banks of eurozone member states, which have the ability to print new money. The money is then sent to the treasury. With more money flowing through the system, recessions driven by a lack of capital are relieved. This is why the measure is called quantitative easing.
The United States did this in 2008. In addition to government debt, the Federal Reserve also bought corporate debt. The hyperinflation that some had feared would result from the move never materialized, and the U.S. economy hit a 5 percent growth rate in the third quarter of last year. The Europeans chose not to pursue this route, and as a result, the European economy is, at best, languishing. Now the Europeans will begin such a program - several years after the Americans did - in the hopes of moving things forward again.
The European strategy is vitally different, however. The Federal Reserve printed the money and bought the cash. The European Central Bank will also print the money, but each eurozone country's individual national bank will do the purchasing, and each will be allowed only to buy the debt of its own government. The reason for this decision reveals much about Europe's real crisis, which is not so much economic (although it is certainly economic) as it is political and social - and ultimately cultural and moral.
The recent leaks have made it clear the European Central Bank is implementing quantitative easing in this way because many eurozone governments are unable to pay their sovereign debt. European countries do not want to cover each other's shortfalls, either directly or by exposing the central bank to losses, a move that would make all members liable. In particular, Berlin does not want to be in a position where a series of defaults could cripple Europe as a whole and therefore cripple Germany. This is why the country has resisted quantitative easing, even in the face of depressions in Southern Europe, recessions elsewhere and contractions in demand for German products that have driven German economic growth downward. Berlin preferred those outcomes to the risk of becoming liable for the defaults of other countries.
The major negotiation over this shift took place between European Central Bank head Mario Draghi and German Chancellor Angela Merkel. Draghi realized that if quantitative easing was not done, Europe's economy could crumble. While Merkel is responsible for the fate of Germany, not Europe, she also needs a viable free trade zone in Europe because Germany exports more than 50 percent of its gross domestic product. The country cannot stand to lose free access to Europe's markets because of plunging demand, but it will not underwrite Europe's debt. The two leaders compromised by agreeing to have the central bank print the money and give it to the national banks on a formula that has yet to be determined - and then it is every man for himself.
The European Central Bank is providing the mechanism for stimulating Europe's economy, while the eurozone member states will assume the responsibility for stimulating it - and living with the consequences of failure. It is as if the Federal Reserve were to print money and give some to each state so that New York could buy its own debt and not become exposed to California's casual ways. The strangeness of the plan rests in the strangeness of the European experiment. California and New York share a common fate as part of the United States. While Germany and Greece are both part of the European Union, they do not and will not share a common fate. If they do not share a common fate, then what exactly is the purpose of the European Union? It was never supposed to be about "the pursuit of happiness," but instead about "peace and prosperity." The promise is the not right to pursue, but the right to have. That is a huge difference.
The anthem of the European Union is from Beethoven's 9th Symphony, which contains these lines from the German poet Friedrich Schiller:
Joy, beautiful sparkle of the gods,
Daughter of Elysium,
We enter, fire-drunk,
Heavenly one, your shrine.
Your magic binds again
What custom has strictly parted.
All men become brothers
Where your tender wing lingers.
I wrote in my new book, Flashpoint: The Coming Crisis in Europe, that Europe is about:
"...the joy of joining men into a single brotherhood, overcoming the divisions of mere custom. Then there would be joy. Brotherhood means shared fate. If all that binds you is peace and prosperity, then that must never depart. If some become poor and others rich, if some go to war and others don't, then where is the shared fate?"
A Crisis of Brotherhood
Europe's crisis is not ultimately an economic one. Everyone - families and nations - has economic problems. The crisis is not war, which tragically is as common as poverty. Europe's problem is that it promised a joy beyond custom, a joy yielding brotherhood and abolishing war, and a promise based on prosperity, which is a promise so vast it is beyond anyone's hope to make perpetual. Neither perpetual peace nor perpetual prosperity can be guaranteed, therefore the joy that would overcome custom and bind men in brotherhood is a base of sand.
In the European Central Bank's compromise with Germany, we can see not only the base of sand dissolving but also the brotherhood of Europe falling apart. At the heart of this promise is the idea that Germany will not share the fate of Greece, nor France the fate of Italy. In the end, these are different nations. Their customs can be overcome by the joy uniting them in brotherhood, but absent that joy, absent peace and prosperity, there is nothing binding them together.