EU in crisis? (31-3-2020)

Written by: Jan Luiten van Zanden

The plan for today was that I would give you an update of the garden (still in deep crisis) and then tell a bit about the new kid on the block, the robin, and the question where does his/her beauty come from. But politics intervened. Last Thursday our prime minister Rutte blocked in a not very diplomatic way requests from Southern European countries to use EU emergency funds for coping with the crisis they are going through. A very foolish and strange position – in times of crisis you have to support your friends! – which will increase the north-south divide that is undermining the stability of the entire EU project. When a few colleagues took the initiative to send an open letter to the government, I immediately joined (see the text below).

These differences have deep historical roots, as we are very much aware (already in the Middle Ages you see certain patterns that reappear today), but the big mistakes in the European project have, I think, been made in the 1990s. I always thought that the historic mission of the EU was to stabilize democracies all over Europe – in particular in the south (remember that in 1973 Greece, Portugal and Spain were still dictatorships!), and after 1990 also in the east. The deal was supposed to be: you become democratic, we integrate you into the European economy, which will  lead to much economic growth, which will stabilize your democracy. This worked for some time, and continues to work for the Mediterranean – it is amazing how resilient the Greek democracy has been in spite of the dramatic economic crisis – but the institutional guarantees that the EU tried to impose on its member states have not been strong enough to stop Eastern European countries like Hungary and Poland to slowly slide into some kind of autocracy. The integration of Eastern Europe is from this perspective becoming a nightmare and we have to prepare ourselves to share our house with politicians who derive their inspiration from another dynamic leader from eastern Europe. The rapid enlargement of the 1990s was the first mistake, the euro the second one. It was a political project (to reconcile France with the reunification of Germany), and most economists were for good reasons highly critical about uniting so many very different countries in such a way – given the fact that real power remained decentralized (in the member countries) and economic and monetary traditions were so different. After the 2008 financial crisis it became increasingly clear that for once the economists had been right, and that the negative consequences of maintaining the straightjacket of the euro were huge, and fully felt by Greece, Spain, Portugal and Italy. In more recent years the south had struck back by controlling the European Central Bank and implementing policies which were favourable to their banks (and bad for pension funds and savings of the north). And now we witness another stage in this battle….    It is such a bizarre situation: the ECB is spending billions of euros on keeping interest rates down (but they are already incredibly low) and sustaining the liquidity of the banking system, whereas funding that is necessarily to keep the Italian economy from going into a deep depression is not forthcoming, because not consistent with financial orthodoxy.

And just in time the Robin showed up, took his position in the sunshine, and started to sing….

Continue reading: Why is there beauty in nature? (1-4-2020)