David Warsh: Duking it out about the European economic crisis
This first ran in economicprincipals.com and then on the site of the Providence Committee on Foreign Relations (thepcfr.org)
Towards the end The Euro and the Battle of Ideas (Princeton, 2016), by Markus Brunnermeier, Harold James and Jean-Pierre Landau, the authors observe that most of the debate about the economic crisis of the European Union takes place in the English-language press: the Financial Times, The Wall Street Journal, The New York Times, The Economist. This means it is filtered through a sort of condescension about Europe not really “getting it,” they say.
Moreover, they note that the debate fosters the impression that a considerable gap exists between central bankers and technocratic experts and ordinary folk caught in the machinations of the technocrats. European crises thus are increasingly depicted by populists who see themselves as defending citizens against a cosmopolitan elite.
Doubt it? The authors are too polite to say so, but a case in point is The Euro: How a Common Currency Threatens the Future of Europe (Norton, 2016), by Nobel laureate , a peripatetic Columbia University professor. According to Stiglitz, the Euro has been an abject failure. Policy-makers removed two key adjustment mechanisms from member states – interest and exchange rates – without creating various pan-European policy instruments and safety nets to replace them.
The result, he says, is disastrous, with depressions in some countries worse than the Great Depression. “Europe need not be crucified on the cross of the Euro,” writes Stiglitz. It is time to give up on a single currency, separating the Euro into Northern and Southern versions, with debts of all parties denominated in the softer and more flexible Southern Euro.
Stiglitz’s book has been reviewed in the FT, WSJ, NYT, and The Economist, generally respectfully, often critically (Roger Lowenstein gave the book a proper going-over in the Sunday Times). Meanwhile The Euro and the Battle of Ideas has appeared in none of them. Yet in all respects the latter is the better book. It is harder to read, that’s true. In their determination to expose the roots of the battle of ideas that has escalated since the Euro-crisis began – between the northern, or German economic philosophy, and a southern view, associated since the French Revolution mainly with France – the authors have produced a book that is in equal parts history lesson, international economics primer, guide to cultural differences, and political treatise. .
They have the advantage of being deeply involved. Brunnermeier, who is German, is a Princeton University professor, a cutting-edge international macroeconomist who serves on the European Systemic Risk Board. James, a British citizen, also of Princeton, is an economic historian, author of Making the European Monetary Union and Europe Reborn. Landau is a former deputy direct of the Banque de France and former executive director of both the World Bank and the International Monetary Fund. They write:
"The basic elements of the contrasting philosophies can be delineated quite simply. The northern version is about rules, rigor, and consistency, while the southern emphasis is on the need for flexibility, adaptability and innovation. It is Kant vs. Machiavelli. Economists have long been familiar with this kind of debate and they refer to it as rules versus discretion.''
If that sounds familiar, it’s because European integration is fraught with the same kinds of misunderstandings and misinterpretations as exist between men and women, according to the authors. In the last sentence of the book, they draw the obvious moral: “[W]hat we have characterized as the German view and the French view actually need each other to be sustainable.” As with men and women, in between exists lifetimes of negotiation, including some doleful possibilities. Surmounting many little crises all at once often results in closer union; too many crises all at once may mean divorce.
If Europe is high on your list of concerns, you should read this book; European leaders will. Otherwise you can go to whatever is next among your Sunday responsibilities. I have no time to do it justice here to the intricacies of its Teutonic /Mediterranean, east-of-the-Rhine/west-of-the-Rhine arguments. For me, the most intriguing idea was the brief discussion of the emergence of Spitzenkandidaten (leading candidates, in English) that Brunnermeier, James and Landau identify as a promising sign.
Popular election of European leaders appeared for the first time in 2014. Instead of waiting, as in the past, to be assigned to the task by log-rolling heads of state, pan-European candidates competed directly with one another to head the European Commission. They traveled around the EC’s twenty-eight member states, debating each other and giving interviews to local media, each in his or her own language.
Ever-better simultaneous translation is in the offing. British premier David Cameron was, not for the last time, the big loser. Here is an excellent video account of the innovation, as buoying, at least to my mind, as a quick trip to Berlin, Meanwhile, a little less hectoring from I-told-you-so American economists would be welcome.
David Warsh, a longtime economic historian and financial columnist, is proprietor of economicprincipals.com, where this first appeared.
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