Tuesday, 14 January 2014

Whose national interest?

The second similarity between 1914 and 2014 that Münchau sees is that the narrow minded pursuit of national interests led/leads European powers to slide into disaster. Today, he argues, the different Euro-countries look at the crisis through different lenses. The result is political stalemate because no consensus can be reached on how to solve the crisis.

This is Münchau's map of national interests: Germany sees the crisis as a problem of moral hazard. The crisis countries spent beyond their means and don't work hard enough. Italians reject German supply side economics and want 'macro economic coordination'. The French and Spanish resent outside interference in their national affairs. Fins and Dutch view the crisis countries with the same critical eye as the Germans. And the British don't really care about all of this but only use the Euro crisis as a backdrop for national politicking.

The notion of 'national interests' is always a bit questionable and is highly problematic both in 1914 and 2014. Chris Clark stresses that the motives that guided European government in 1914 do not easily fit the categories of national interest. Instead, group interests of political cliques and economic lobbies played important roles. Other historians before him have made this point even stronger. Indeed, one has to wonder in what way the German ambition of annexing steel and mining areas in northern France were part of the nation's interest. The German soldiers who died in the war and their families would probably have preferred a longer life in a smaller Germany to becoming pawns in the imperial plans of German industrialists and generals. 

Can the notion of national interest be applied with any more benefit to the Euro crisis? Some doubts may be in place. The German government is not alone in pushing a political agenda that is informed by 'supply side' economics in general and more specifically a good dose of neoliberalism. In the crisis countries many among the political elite and in the public agree to this narrative. Are Italians really all closet keynesians? Certainly not Monti and there is no political party of any consequence that bases its program on an economic analysis that is radically different from Merkel's. In Greece there is, Syriza, but despite its remarkable success it remains a minority party. The same pattern is true in other crisis countries. 

Some governments of the crisis countries ask for a slower pace of austerity compared to what the German government demands. But this is not because they disagree in principle. It's mainly because it is them, rather than Angela Merkel, who have to face the angry crowds with the pitchforks. If Merkel's constituency was not in Rügen but in Crete she, too, might prefer a slower paced austerity.

The austerity policies of Europe are not a German project but they're being carried out with broad political support across the Eurozone. Moreover, there are substantial parts of the German public that don't agree with the austerity policies and that don't benefit from them either. Among those who don't agree there is, well, Münchau himself. And while there is broad support for Merkel's policies the left wing party Die Linke (over 8% in the last elections) has mounted a principled opposition. 

Finally, Germany's economic model that relies on strong export surpluses and low labour costs is far from being in the 'national interest'. Many German workers have low salaries and their living standards are not keeping pace with the overall progress of prosperity. Many Germans and many German companies may be doing well but the nation as a whole is not necessarily. 

That European governments from Lisbon to Berlin are preferring 'supply side' economics to a Keynesian reading of the crisis is less to do with national interests and more with the domestic implications of alternative policy models. Anyone adopting a Keynesian approach has to address the problem of weak domestic demand and this leads inexorably to the issue of the distribution of wealth and incomes. And this is for many politicians, German or not, the 'third rail' of economic policy. 

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