Sunday, November 23, 2014

A Europe of Solidarity, Not Only Discipline

BERLIN – Originally, the European Union was what psychologists call a “fantastic object,” a desirable goal that inspires people’s imaginations. I saw it as the embodiment of an open society – an association of nation-states that gave up part of their sovereignty for the common good and formed a union dominated by no one nation or nationality.

The euro crisis, however, has turned the EU into something radically different. Member countries are now divided into two classes – creditors and debtors – with the creditors in charge. As the largest and most creditworthy country, Germany occupies a dominant position. Debtor countries pay substantial risk premiums to finance their debt, which is reflected in their high economy-wide borrowing costs. This has pushed them into a deflationary tailspin and put them at a substantial – and potentially permanent – competitive disadvantage vis-à-vis creditor countries.

This outcome does not reflect a deliberate plan, but rather a series of policy mistakes. Germany did not seek to occupy a dominant position in Europe, and it is reluctant to accept the obligations and liabilities that such a position entails. Call this the tragedy of the European Union.

Recent developments seem to offer grounds for optimism. The authorities are taking steps to correct their mistakes, especially with the decision to form a banking union and the outright monetary transactions program, which would allow unlimited intervention by the European Central Bank in the sovereign-bond market. Financial markets have been reassured that the euro is here to stay. That could be a turning point, provided it is adequately reinforced with additional steps toward greater integration.

Unfortunately, the EU’s unfolding tragedy characteristically feeds on such glimmers of hope. Germany remains willing to do the minimum – and nothing more – to hold the euro together, and the EU’s recent steps have merely reinforced German resistance to further concessions. This will perpetuate the division between creditor and debtor countries.

A widening gap in economic performance and political dominance is such a dismal prospect for the EU that it must not be allowed to become permanent. There must be a way to prevent it – after all, history is not predetermined. The EU, originally conceived as an instrument of solidarity, is today held together by grim necessity. That is not conducive to a harmonious partnership. The only way to reverse the trend is to recapture the spirit of solidarity that animated the European project from the start.

To that end, I recently established an Open Society Initiative for Europe (OSIFE). In doing so, I recognized that the best place to start would be where current policies have created the greatest human suffering: Greece. The people who are suffering are not those who abused the system and caused the crisis. The fate of the many migrant and asylum seekers caught in Greece is particularly heart-rending. But their plight cannot be separated from that of the Greeks themselves. An initiative confined to migrants would merely reinforce the growing xenophobia and extremism in Greece.

I could not figure out how to approach this seemingly intractable problem until I recently visited Stockholm to commemorate the centenary of Raoul Wallenberg’s birth. This reawakened my memories of World War II – the calamity that eventually gave birth to the EU.

Wallenberg was a hero who saved the lives of many Jews in my home city of Budapest by establishing Swedish safe houses. During the German occupation, my father was also a heroic figure. He helped to save his family and friends and many others. He taught me to confront harsh reality rather than to submit to it passively. That is what gave me the idea.

We could set up solidarity houses in Greece, which would serve as community centers for the local population and also provide food and shelter to migrants. There are already many soup kitchens and civil-society efforts to help the migrants, but these initiatives cannot cope with the scale of the problem. What I have in mind is to reinforce these efforts.

The EU’s asylum policy has broken down. Refugees must register in the member country where they enter, but the Greek government cannot process the cases. Some 60,000 refugees who sought to register have been put into detention facilities where conditions are inhumane. Migrants who do not register and live on the street are attacked by the hooligans of the neo-fascist Golden Dawn party.

Sweden has made migration and asylum policy a high priority, while Norway is concerned about the fate of migrants in Greece. So both countries would be prime candidates to support solidarity houses. And other better-off countries could join them. OSIFE is ready to provide support for this initiative, and I hope other foundations will be eager to do the same. But this has to be a European project – one that eventually must find its way into the European budget.

Currently, Golden Dawn is making political headway by providing social services to Greeks while attacking migrants. The initiative that I propose would offer a positive alternative, based on solidarity – the solidarity of Europeans with Greeks and of Greeks with migrants. It would provide a practical demonstration of the spirit that ought to infuse the entire EU.

As soon as possible, I will dispatch an OSIFE needs-assessment team to Greece to contact the authorities – and the people and organizations already helping the needy – to work out a plan for which we can generate public support. My goal is to revive the idea of the EU as an instrument of solidarity, not only of discipline.

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    1. CommentedAlexander Antonov

      Reality of crisis-proof economy

      Economics as an exact science has not yet been developed. This is confirmed by the fact that the major economic phenomenon – economic crises – has no comprehensive explanation. This is accounted for by the lack of an appropriate mathematical description of economics, which is natural, because none of the mathematical tools used in economics allow giving such a mathematical description.
      Firstly, all of them are aimed at the investigation of mass phenomena, because the economic behavior of an individual is unpredictable. For instance, Sir Isaac Newton wrote on the issue that simulating human behavior is a more complicated task than predicting planetary motion. However, try to imagine the development of radio-electronics, if it refused to study the processes in radio-electronic components comprising all complicated radio-electronic systems due to the unpredictable behavior of single electrons.
      Secondly, the methods for analysis of economic situations widely used at present – graphical, statistical, econophysical – allow defining only states, and not processes.
      Processes are defined by differential equations, which have found quite restricted application in economics.
      This is why, using the term introduced by William Ross Ashby, economics can be referred to as ‘the black box’ and studied using the methods borrowed from the exact sciences. In particular, the term ‘the white box’ introduced by Norbert Wiener can be used; it corresponds to the object under investigation where processes identical in terms of their mathematical description to those in ‘the black box’ are observed. Moreover, mathematical description of the processes in ‘the white box’ is available. That is, basically, the analogy approach is used.
      Unfortunately, ‘the white box’ in the exact sciences has not yet been found for the current market economy. This is how complicated and unique economic phenomena are. Nevertheless, ‘the white box’ does exist for the economy reformed as suggested below.
      However, to begin with, let us find ‘the white box’ not for economics in general, but for the basic process, which is the ‘goods-money-goods’ process. The author demonstrates that this process is potentially oscillating and can be described with a second-degree differential equation with constant coefficients, similar to the mathematical description of the process in a radio-electronic oscillation circuit. That is, an electric oscillation circuit can be used as ‘the white box’ with regard to the ‘goods-money-goods’ process.
      However, such an oscillation process is unknown in the economy and has never before been implemented. The matter is that its implementation requires special conditions which cannot be created in a random way. Similarly, for instance, TVs and cars are not assembled at random, houses and bridges are not built in a random fashion, and food cannot get into a supermarket randomly, and so on. Any constructive activities always require certain knowledge, and economics is not an exception.
      In this respect, it is quite natural to ask whether economics needs these oscillation processes and the respective knowledge about them. Actually, it does, because only in this case money works all the time and most efficiently. Otherwise, there is always either shortage or surplus of money. As for oscillation processes, they are preferred and widely used not only in economics, but in nature and the exact sciences, as well. Here belong, for example, rotation of electrons around the nucleus and the revolution of planets about the Sun. Nothing can exist without the oscillation processes. Therefore, they should not be ignored in any science.
      However, due to ignorance of these circumstances, the actual economic process ‘goods-money-goods’ is described not with a linear differential equation with constant coefficients, but with a linear differential equation with variable coefficients, which is often referred to as the parametric differential equation. This is accounted for by the aforementioned unpredictability of human behavior, or the human factor, which was referred to as ‘the invisible hand’ by Adam Smith. For this reason, the coefficients of the parametric differential equation describing the real ‘goods-money-goods’ process are not just functions of time, but random functions of time. Therefore, these differential equations have no analytical solution. As for the market economy which is described by systems of these parametric differential equations, it is unpredictable; this is why economic crises in it are inevitable.
      Consequently, in order to be able to prevent economic crises, it is necessary to reform the economy. To this end, it is necessary to create the conditions providing for minimization of the human factor. The author suggests new economic tools enabling to solve the problem. Here belong business-interfaces, which provide for minimization of the internal human factor, and the new global information network free from the shortcomings of the Internet, which provides for minimization of the external human factor. The latter offers its users numerous business- and intellectually-oriented services.
      Socialist economy also provided for the successful suppression of the human factor (at that, contrary to business-interfaces, human rights and freedoms were suppressed, as well). Nevertheless, it was a prosperous economy. Therefore, business-interfaces must provide for linearization of the actual ‘goods-money-goods’ processes, i.e., for minimization of non-linear factors.
      The economy reformed as suggested above will become crisis-proof, and economics will become an exact science similar to the theory of electric circuits and systems, which is ‘the white box’ with regard to ‘the black box’ of economics.

    2. CommentedNiki Petrou

      Dear Mr. Soros
      Thank you for your idea and suggestion, it is a sign of light amidst the gloom here in Greece. Having much experience as a volunteer at a small charity for free meal hand-outs in central Athens, I have the following suggestions:
      A)Shelters for the homeless (Greek and immigrants alike) are desperately needed. There are far more homeless people than visibly appear, as many hide, living in abandoned buildings, passageways, abandoned cars, old shacks. At the charity where I work, the homeless gather several hours before the meals, waiting on the stairs, because simply they don’t have elsewhere to go. Greek authorities do not seem interested to help in this one, as there are many empty state-owned buildings in central Athens, or abandoned hotels, which could easily be converted into shelters, but it doesn’t happen. B)Quality food is desperately needed for many people, even those who are not homeless. Many pensioners search in garbage bins for food, as they cannot afford both food AND medication. Thousands of families cannot afford meat/dairy and thousands of households are without electricity. These most vulnerable ones can only be found through the social services of local authorities (those who still operate) or local churches. Higher level authorities would not be aware of the full scale of the problem, it is very hidden. The local authority free meal handouts operate, but I get many complaints from the homeless that these meals are mostly only legumes and pasta, so, in the long term, beneficiaries get deficient in necessary ingredients and vitamins and, as I see them over the months, many getting thinner and sicker. So it is not just food, it is what type of food. There also need to be free meal handouts, which work consistently throughout the year. Most small charities close over the summer, as volunteers leave, which means that the poor have only one or two places to go for food, quite far from where they live. If they cannot afford transport, or are too old and frail to travel, they go without food. C)Care homes for children are also desperately needed. All children’s homes are now packed, which means that many children, even in cases of family abuse, are left to wait for many months, if not years. Additionally, more and more families ask orphanages to host their children, as they can no longer afford to feed them, but there is no place for them to go. Currently, there are cases of pregnant women and babies and toddlers who are simply homeless, living on the streets.
      These are my first suggestions, having known the situation from the inside. Thank you so much for wishing to help. If your organization wishes to do a real needs assessment, rather than the high level authorities, I would recommend to talk directly to the poor themselves, those coming to the the free meal hand-out points, local churches and volunteers, who have heard many stories, from first-hand experience. The full scale of the problem is hidden, changing all the time, and has not been fully assessed or recorded by any organization.
      Beyond this, however: Through my work as a volunteer, I have talked to many beneficiaries, from Greece, Afghanistan, Pakistan, Syria, the Balkan countries, we treat them all the same, with equal compassion and respect. Believe it or not, they mostly treat each other with respect too. The Greeks who have suffered the most, the homeless, the destitute, these ones are not racist. They know what is like to be homeless, marginalized and hungry and they have compassion for their immigrant brothers. More often than not, it is those who are outside, who haven’t had that severe personal hardship themselves, who find it easy to scapegoat and condemn immigrants.
      All of the beneficiaries, however, come to me with one question, the same question: ”Do you have a job? I don’t want charity. I want to work. Do you know of a job? I can do anything”. People need their dignity back. Yes, meals, shelters, medical care, all this is crucial, but people need their dignity back. Some kind of work to help them return to making a dignified living. How can THIS be corrected? Thank you again. Your willingness and good intent can make a big difference in these people’s lives.

    3. CommentedGiles Conway-Gordon

      George Soros' solidarity houses initiative is admirable and welcome but it is simply social sticking plaster; it does nothing to solve the fundamental problems facing Greece, Spain and Italy (and in due course France).

      With debt-to-GDP ratios which will exceed 100% within 3 years all these countries are approaching the debt event- horizon heralding default. At this point any interest rate on borrowing even marginally above the growth rate (let alone 4 or 5%) will lead inexorably to default. Unlimited bond buying by the ECB will simply delay the inevitable.

      A necessary precondition of any realistic solution to these countries' dire situation, politically, socially, economically and financially, is that they be enabled to return to durable growth. Realistically, this is impossible while they remain within the Eurozone.

      Nonetheless the European political and bureaucratic elite (including most recently Mr. Draghi) continue to maintain blindly that the Euro is irreversible and insist on insane austerity programs which are creating social devastation and human misery on an enormous scale.

      Giles Conway-Gordon

    4. CommentedMark Slater

      How ironic that George Soros played such a large role in forcing the UK to leave the ERM, the precursor to the European Single Currency in the early 90s.
      Perhaps if he had not done so, the UK would today use the € rather than the £. The Eurozone would be in much better shape if the Uk was part of the Euro club.
      The UK would both have offset German dominance and insisted that the rules of the Euro club were followed from the get-go.
      Solidarity cuts both ways - the Greeks, Spanish and Italians should have followed the rules of the Euro Club from the get-go. No wonder the Germans feel so betrayed and reluctant to bail out these recidivist fiscal cheaters.

    5. Commentedjim bridgeman

      Let individuals associate collectively to do what governments cannot. A much more sensible approach than having individuals associate politically in the (vain) hope of forcing governments to do what they will not, and arguably should not or cannot.

    6. CommentedAndré Rebentisch

      Those who support "Fiscal discipline" are not opponents of the welfare state and helping the needy, in particular asylum seeking migrants. In fact those who oppose sound fiscal policies and compliance with the law and obligations are also those who don't care for the rights and dignity of other people. The fundamental concept: TRUST. It should not be upon individual soup kitchens to help the needy but sound law-abiding policies. It is pretty clear that where compliance is urged you shouldn't award breakers of agreements. Who bullies those who expect that deals are usually kept, not broken, also undermines "trust" as a governing principle. People should never get used to break agreements, laws and rights of compatriots. Misconduct should not get awarded.

    7. CommentedZvonimir Miletić

      Mr. Soros really understands current situation in EU and problem with Germany and their unwillingness to help Greece. They came to unfavorable position in which they don't want to be leader in EU because they will have to help profligacy countries and they just don't care about them. I think that they consider them as lower class of people because they work less then Germans do.
      They have to change their attitude. Either they have to start helping debt-burdened countries or leave his dominant place to someone other but I am not sure who would that be.

      What concerns me most is Golden Dawn party. Nowadays in world we have one of the biggest economic crisis ever. Surely the biggest crisis was The Great Depression. What happened after The Great Depression?? A.H. and the World War II. I just hope that it won't happen again, but problem is that crisis is perfect ground for someone like A.H to come to power. That would be disaster and we have to try to prevent it. One example is this neo-fascist Golden Dawn party that almost got the power because of the big crisis in Greece and the people who are turning to radical moves. That can spread to some other countries and cause much bigger problems that could lead to massive wars but I hope that I am wrong.

    8. CommentedAlexandros Liakopoulos

      What is really amazing is that mr Soros is completely right. He is so right, one could accuse him of witchcrafting some hundreds of years ago. But, in the Age of the Knowledge which comes along with the Information Age (or at least, should come along), we know better than this. We know, for example, that nothing happens without a reason, both in nature, and in human societies. Reasons vary from time to time, but they are never missed, they can always be detected.
      Nowadays, Europe is "advancing backwards", forgetting everyday even more what unite - or united? - its member states, reminding and remembering on its own everything that does takes it appart: nationalisms, hegemonisms, seperationisms, nazism, far-right populism and extremism, economic occupation of countries, institutional legitimacy breakdown because of the widening of democratic deficit of the EU and - far more alarming - of the national governments.

      Therefore, George Soros is exactly on the point, highlighting the concrete challenges EU is facing, under this unpromising international context, which gets even more difficult to handle within a "shock-therapy", designed to boost even further the social gap, which is imposed to a day-by-day bigger and bigger European territory. However, the current situation did not came out of the blue.

      EU crisis was "triggered" through Greece, while George Soros was coming and going to the "Maximou House", the Greek Premier's Home-Office. His efforts to "save" Greece, under his cooperation with PM George Papandreou and the Goldman Sacks's high profile Team that visited the country twice three years ago, with Mr Roubini also playing a vital role as Mr Papandreou's adviser, initiated the hard - but so expected, for anyone who knows how Germany reacts whenever she feels a threat in its "vital space" (periphery) - response of Germany, to the "attack" of the markets to the South. Mr Soros IS "the markets" or at least is directly connected with them, in some sense. Therefore, while he was one of the main "initiators" of the "chain reaction" that led to the current state of things in the EU, he offers his insightful thinking to describe nothing more than his (and whose else's, I wonder?) original plan, which more or less gets along with the New Orientation towards the EU of the White House.
      And while "the plan goes as planned" and the South gets ripped of its very soul - not to mention its wealth, liberties, rights and democracies - Mr Soros appears as a filanthropist saviour of the poor, the disadvantaged, the migrants, etc. He does the same thing all around the globe, buying his legitimacy to speak and to "play (hard)ball", wherever his "organisations" appear. "Green development", renewable energie systems and civil society organisations are working, financed and develop their projects in parallel, under "his vision". He does have a vision and a method to impose it; and while he does impose it, irrespectively to human cost, he comes back to collect his earnings. He even does that under the casquette of the philanthropist - which he is, no doubt about that, as his "contributions" speak for themselves and are self-evident.
      However, disregarding the fact that his "contributions" are getting important after his own "initiatives" and other people's responses to these initiatives, would be as misleading, as to conclude that "he only speaks his heart off"! Not more, but nor less either...

      PS: on the initiative itself, except stating it is very much needed in Greece - that's sure and gets even more sure day by day, one should also bear in mind that wherever his NGOs appear, public unrest's boost follow. And even more, wherever his NGOs appear, the image of a "failed state" may be created to the International Community, as he is very well known to get involved in such kind of states. The negative thing for the locals though, is that "failed states" may be invaded, "should the necessity becomes a reality", as the Media report in such cases. So I wonder: his involvement to current or soon-to-be "failed states" is subsequent only to chance and his viosionary thinking, or could there may be a more vital explanation? A plan, for instance? "Once is chance, twice is coincidence; third time is a plan", says James Bond. Well... when it happens again and again and again, could there be chance and coincidence? If so, he is a very lucky person, predicting other people's bad luck!

    9. CommentedPaul A. Myers

      John Maynard Keynes strongly made the point in "The Economic Consequences of the Peace" that Germany's productive and organizing capabilities, then as now awesome, had to be harnessed to the wider economic prosperity of Central and Eastern Europe.

      Europe needs to aim at euro-zone wide borrowing costs that are approximately equal. Then work backwards to get there.

      European-wide bank regulation would be one brick. European-wide fiscal policy and discipline would be another brick. Labor policies which promote a convergence of productivity another.

      Doing the minimum doesn't get you there (Ask Barack Obama!).

      But I think the refugee problem is partly a European policy problem, but it is going to be an enduring one because massive instability across the Muslim world is going to send refugees westward looking for safety and ultimately a better life. Only a more dynamic Europe can hope to meet this challenge.

    10. CommentedStamatis Kavvadias

      This sounds like a good idea, but ...let me untie Soro's tongue-tie and hem in the beginning. So called "nation-states", as they appear in the beginning, have nothing to do with member/debtor/creditworthy countries that they become in the rest of the text.

      The reference to "giving up part of sovereignty for the common good," as he calls it, or for the "prosperity" German politicians imply, with no dispute at the moment, when asking for concessions in sovereignty, are *undemocratic*. Why should european peoples give up sovereign rights, overseen by democratic accountability, to the EU without putting in place first the means for similar accountability? Because the EU is a success? It is a great failure at the moment, and no nobel prize will hide this when unemployment is increasing everywhere. Though an economy-based approach is placed in the center of european integration, the hart of the economy (the banks) is malfunctioning.

      If countries have to lose some sovereignty, that is fine! But the peoples will not put up with any such loss, to the benefit of oligarchs in Brussels or elsewhere. Taking into account the failure for a european constitution, this is another effort, from those responsible for the crisis (markets, banks, and politicians), to remove the need for accountability.

      This lack of accountability, for banks rating agencies and politicians, was why the crisis started and expanded. In fact, cases like that of Greece (and maybe Italy), show that even accountability of politicians under a representative system is not adequate. In Greece such accountability is reduced to "choosing another political party next time", leaving the people without choices, and exposing how politicians are attempting the same as banks: to pass responsibility over to the people. Same in Portugal, as I understand...

      If no accountable political institution of Europe emerges over loss of country sovereignty, there is no reasonable chance for the efforts in this direction. The approach of Germany rejecting a "united states of Europe" target, means that efforts for reducing state sovereignty will hit a wall. The hope to use the banking union, and the resulting increased economic dependence of eurozone countries, to leverage the Europe of oligarchs must fail. And it will fail, unless all Europeans are caught in the same trap as Greeks!

    11. CommentedFrank O'Callaghan

      Soros gets it right so often that he should be listened to by everyone. Germany was ruined by debt and the European war that followed the social and political consequences of the debt. Germany should not repeat that mistake on others. Who benefited?