Wednesday, May 5, 2010

Give us back the German empire

Give us back the German empire
By Francesco Sisci

BEIJING - Even on May 1, when Germany was guiding the European Union and International Monetary Fund draft of the carefully crafted rescue plan for Greece, the Greek problems seemed far from over. Many doubt the plan will solve all the troubles that started in Athens and which are now spilling into Europe and the world. This might require far stronger intervention in Greece, although the plan seems a balanced yet possibly insufficient compromise.

However, a larger intervention in Greece opens a box of problems, which this time could be properly attributed to Pandora, the originator of the ancient Greek myth. This box actually takes us directly from Greece to Germany, the strongest economy in
Europe, and thus a backbone for Greek salvation or demise.

The past century was by and large the history of Germany, yet, while the German shadow seemed to fade away in recent years, current events in Greece are bringing back its destiny - this time in a way very different from before.

The first half of the 20th century was marked by two world wars revolving around Germany trying to expand and much of the rest of the world rallying together to stop its expansion. The second half of the century saw the Cold War, spinning around a basic point: Germany was divided, split along the strategic lines of two vying blocs. When the German split ended, the Cold War ended as well. In a way, again, the Cold War was about Germany, about keeping it divided. After the fall of the Berlin Wall, the rest of communist Europe fell and old Cold War rifts dissolved.

Conversely, the divides of the Asian Cold War are still there. Korea is still not united, nor is mainland China united with Taiwan, proving that the Asian appendix of the European Cold War is a different story, obeying a very different logic. Therefore, it further underscores that conflicts and wars in the Atlantic or the Pacific, though related and connected, have different developments and have to be understood along different lines.

This distinction is important to grasp what is going on with Europe now. The crisis in Greece is dangerous for the world and for Europe. Again, like in the last century, it essentially revolves around Germany. It is dangerous because it threatens the future of the euro, one of the strongest currencies in the world. This emergency, if not kept under control, could spin into a new financial crisis at a time when the Atlantic - yet not the Pacific, which has almost skirted the crisis, hinting at a decoupling of the world - is just lumbering back from gigantic economic and strategic problems in the shape of the 2008 Wall Street banking crisis and the disastrous Iraqi and Afghanistan wars.

The Greek emergency is about a country basically cheating its partners by faking its accounts to get a free ride on the backs of stronger economies in the European Union, and particularly of the strongest economy of the group - Germany. Confronted with this cheating, Germany and Europe have great difficulties. Greece undermines global trust in EU members and especially in members that are apparently weaker in their debt ratios: smaller Portugal and Ireland, but also larger Spain and Italy.

A Greek domino effect in Europe could have unfathomable global consequences. Germany would inevitably be sucked in, despite its own brilliant economic performance and financial discipline. From this point of view, Germany should intervene in Greece to build some kind of dam for itself.

Still, there is a flip side of the coin. If Germany intervenes in Greece, it signals that any undisciplined country in Europe can hope for a free German ride, and thus that country would be encouraged to carry on its peccadilloes or large sins totally unrestrained - nanny-Berlin will always be there to save its skin. This would also inevitably bring down Germany, as the load of sins of others would eventually grow too big for Berlin to shoulder.

These alternatives entail different courses of actions for Germany. Germany could decide that Greece is its problem, and thus push for a European political union that eventually would de facto politically take over Greece and the rest of Europe. Berlin, aided by other disciplined European countries, could administratively "invade" sinful countries and bring about a European economic discipline that would eventually save the continent.

Or it could decide to kick Greece out of the euro, thus proving that the European currency is something one can join or leave, almost freely. This would weaken the political weight of the euro and be a tombstone for the dreams (or delusions) of one European political union. Furthermore, Greece left alone could spiral into social and political unrest that could in turn kindle wars in the Balkans or with neighboring Turkey, as on both fronts there are still unforgotten historical disputes.

Or also, Germany could stay aloof by balancing its intervention in Greece with that of the IMF, thus signaling that Greece is something of an international issue, not something particularly pertaining to Germany or Europe.

All choices have their dark side. Let's start from the third one and move up.

The decision to stay aloof is in theory the best, as it doesn't force anybody to make stark and costly political choices, and it bets on time and miracles that could provide a solution that has not been thought of so far. But as weeks go by, time is proving that staying aloof could be just a waste of time, as problems grow bigger and no real resolution looms on the horizon.

The idea of kicking the Greeks out of the euro is the cleanest and clearest - it is that of the school principal booting out the rowdy kid. But it is also an admission of defeat: the principal says, "I can't educate that kid," and thus he admits that his teaching (administrative in this case) methods are not working or they are no good. It would be an utter defeat of the idea of greater unity in Europe, something that has grown to be fundamental in European cultural consciousness and perceptions in the past 70 years, after the huge massacres of the two world wars.

It would be an historic u-turn; it could move Europe back to the times of unending wars and confrontations, and prove that decade-long conflicts in Yugoslavia were not minor law-and-order episodes, like some kind of mafia wars, but exposed once again the deep undying seed of blood in the European soul. Then, Germany, although it would gain time, would be inevitably sucked in.

This leaves us with the first option, the one that at first sight is the most despicable, as it would imply in fact a German takeover of Europe, something that the rest of Europe had successfully managed to avoid through over a century of fights. It is very complicated, and it is very risky. It causes great qualms and suspicion all over Europe - but especially in the United Kingdom and France (which managed to avoid two expansions at great cost), and also in Russia and the US, as certainly a new German Europe would change the outline of the world. Most importantly, it runs against Germans' own fear of themselves. But other options, if carefully gauged, are even scarier. Those options might mean wars and destruction, and the end of hard-achieved and widespread continental welfare.

My preference is, as Dante wished in the 13th century, for the German emperor to take over, and thus for peace and welfare in Europe.

Will it happen? Possibly not, and social upheavals or worse are likely to occur. In 1991, strategist Edward Luttwak [1] warned about the Balkan wars. He argued that the European countries of the union should have joined together and fought in Yugoslavia. The blood that would have been shed together would have cemented the political union. However, European states were unwilling to fight together. They were unwilling to shed blood, and also they didn't want to pick sides: were they to back the runaway states, Slovenia and Croatia, or the unitary state pushed by Serbia?

In the end, America, initially unwilling to intervene, was begged to come in. The greater political unity of Europe was put on hold and watered down with the eastward expansion of the union and the euro area to former communist-bloc countries. In retrospect, the Yugoslavia crisis was a lost opportunity for Europe to achieve a greater political unity.

Will the Greek crisis be another lost opportunity? It could be far more than that. Twenty years ago, Asia, led by China, was just starting its rise - while Japan's wondrous growth was stemmed by its own financial crisis. Now China's gross domestic product is more than four times larger than then, it is driving Asian growth, and it is leading America to lean more on Pacific relations rather than on the Atlantic. Unrest and turbulence in Europe would further decouple Asia's and the Pacific's growth from that of the Atlantic. The Pacific could then take off in a different direction, and socially unstable, possibly war-torn Europe could be slowly marginalized and become globally irrelevant.

In other times, this process could take decades or even centuries. At the present historical speed, it could be a matter of a few years, as just 20 years saw China rise.

Germany should then indeed take over Europe, Chancellor Angela Merkel - and it should do it fast. This might be starting, as on May 1, Merkel said Germany was pushing for changes to the rules governing the eurozone, including the possibility of suspending voting rights for nations that do not uphold their commitments.

This push could certainly start a panic, so how should that be avoided? Germany should adopt English and strengthen its financial and economic links with Britain. This is already happening, as Germany is by far more Anglicized than other European countries, and Frankfurt ceded to London the primacy of the stock exchange. It should also become more "Latin". Over a millennium ago, the invading German tribes absorbed Roman culture, dominated Europe, and brought about the new rise of civilization in the continent.

German Emperor Frederic II made Palermo his capital, stressing the Mediterranean inclination of his empire, and Frederic Barbarossa found a modus vivendi with the rising dynamic Italian cities, which were to become the cradle of capitalism and of the modern world. Present Europe should look at those examples to find a way forward to avoid disaster.

However, looking at Europe from my unprivileged point of view in distant China, I am afraid that Europe and Germany will try to avoid their destiny and fall to their doom. Social unrest might grow like gangrene from the Greek tip, unless we have a miracle. Christian Europe believes in miracles, and so most people will want to pray for one, and God might be benign enough to grant it. Yet we should also know that miracles are acts of God against ordinary natural laws, and they seldom occur.

Meanwhile, the Greek crisis touches on an issue directly impacting the larger economic context - the revaluation of the Chinese currency, the yuan. The Greek crisis started at a time when a broad consensus was reached on the necessity to drop the fixed exchange rate between the US dollar and the yuan and let the yuan appreciate. Not only was the US pushing for it, but also developing countries like Brazil, Indonesia and eurozone countries.

However, the euro plunge caused by the Greek crisis is destabilizing a global situation that is just starting to recover from the 2008 crisis. Although convinced of the necessity of yuan appreciation, do we want to see it appreciate now? Wouldn't its appreciation at the time of the drop of the euro further destabilize the global economic order, causing unpredictable consequences?
Could, however, Brazil, Indonesia or even the tenuous US recovery sustain a few more months of the yuan firmly pegged to the dollar without faltering back to stagnation or crisis? In this, the whole world is affected by the Greek problem, and everyone should have good reasons, at least now, to root for Germany and its expansion of power in Europe.

1. Personal exchange.

Francesco Sisci is the Asia Editor of La Stampa.

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