NEW YORK – Xenophobia and extremism are symptoms of societies in profound crisis. In 2012, the far-right Golden Dawn won 21 seats in Greece’s parliamentary election, the right-wing Jobbik gained ground in my native Hungary, and the National Front’s Marine Le Pen received strong backing in France’s presidential election. Growing support for similar forces across Europe points to an inescapable conclusion: the continent’s prolonged financial crisis is creating a crisis of values that is now threatening the European Union itself.
When it was only an aspiration, the European Union was an immensely attractive idea that fired many people’s imagination, including mine. I regarded it as the embodiment of an open society – a voluntary association of sovereign states that were willing to give up part of their sovereignty for the common good. They shared a common history, in which the French Revolution, with its slogan of liberty, equality, and fraternity, left a lasting legacy. Building on that tradition, member states formed a union based on equality and not dominated by any state or nationality.
The euro crisis has now turned the EU into something radically different. Far from being a voluntary association, the eurozone is now held together by harsh discipline; far from being an association of equals it has become a hierarchical arrangement in which the center dictates policy while the periphery is increasingly subordinated; instead of fraternity and solidarity, hostile stereotypes proliferate.
The integration process was spearheaded by a small group of farsighted statesmen who subscribed to open-society principles and practiced what Karl Popper called “piecemeal social engineering.” They recognized that perfection is unattainable; so they set limited objectives and firm timelines – and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent, requiring further steps. That is how the European Coal and Steel Community was gradually transformed into the EU.
France and Germany used to be in the forefront of the effort. As the Soviet empire disintegrated, Germany’s leaders recognized that German reunification was possible only in the context of a more united Europe, and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, the Germans were willing to contribute a little more and take a little less than others, thereby facilitating agreement.
At the time, German statesmen would assert that Germany had no independent foreign policy, only a European one. This stance led to a dramatic acceleration in European integration, culminating in the adoption of the Maastricht Treaty in 1992 and the introduction of the euro in 1999. A period of consolidation (which included the introduction of euro banknotes and coins in 2002) followed.
Then came the crash of 2008, which originated in the United States but caused greater problems in Europe than anywhere else. Policymakers responded to the collapse of Lehman Brothers by announcing that no other systemically important financial institution would be allowed to fail, which required substituting state credit for frozen markets.
Shortly thereafter, however, German Chancellor Angela Merkel asserted that such guarantees had to be provided by each state individually, not by Europe collectively. That marked the beginning of the euro crisis, because it exposed a flaw in the single currency of which neither the authorities nor financial markets were aware – and which is still not fully recognized today.
By creating the European Central Bank, the member states exposed their own government bonds to the risk of default. Developed countries that issue bonds in their own currency never default, because they can always print money. Their currency may depreciate, but the risk of default is absent.
By contrast, less developed countries that borrow in foreign currencies may run out of currency reserves. When a fiscal crisis hit Greece, the financial world suddenly discovered that eurozone members had put themselves in the position of developing countries.
There is a close parallel between the euro crisis and the Latin American debt crisis of 1982, when the International Monetary Fund saved the international financial system by lending just enough money to the heavily indebted countries to enable them to avoid default. But the IMF imposed strict austerity on these countries, pushing them into a prolonged depression. Latin America suffered a lost decade.
Today, Germany is playing the same role as the IMF did then. The setting differs, but the effect is the same. The euro crisis pushed the financial system to the verge of bankruptcy, which has been avoided by imposing strict austerity and lending countries like Greece just enough money to avoid default.
As a result, the eurozone has become divided into creditors and debtors, with the creditors in charge of economic policy. There is a center, led by Germany, and a periphery, consisting of the heavily indebted countries. The creditors’ imposition of strict austerity on the periphery is perpetuating the eurozone’s division between center and periphery. Economic conditions are continuing to deteriorate, causing immense human suffering. The innocent, frustrated, and angry victims of austerity provide fertile ground for hate speech, xenophobia, and all forms of extremism.
Thus, policies designed to preserve the financial system and the euro are transforming the EU into the opposite of an open society. There is an apparent contradiction between the euro’s financial requirements and the EU’s political objectives. The financial requirements could be met by replicating the arrangements that prevailed in the global economy in the 1980’s and dividing the eurozone into a center and periphery; but that could not be reconciled with the principles of an open society.
There are ways in which the policies pursued to preserve the euro could be modified to meet the EU’s political objectives. For example, individual countries’ government bonds could be replaced by Eurobonds. But, insofar as the contradiction remains, the political objectives ought to take precedence. Unfortunately, that is not the case. The financial problems are pressing – and monopolizing politicians’ attention. Europe’s leaders are so preoccupied with the crisis of the day that they have no time to ponder the long-term consequences of their actions. As a result, they continue on a course that perpetuates the division between center and periphery.
This is such a dismal prospect that it must not be allowed to happen. Originally, the EU was conceived as an instrument of solidarity and cooperation. Today, it is held together by grim necessity. That is not the Europe we want or need. We must reverse this intolerable transformation. We must find a way to recapture the spirit of solidarity and shared values that once inspired the European imagination.