Two decades ago, a senior Eurocrat, Bernard Connolly, wrote a book called The Rotten Heart of Europe. It was an exposition of the economic idiocies implied by Europe's determination to build a single currency without digging the necessary foundations.
Connolly was a kind of early-day Yanis Varoufakis: he annoyed the European establishment with lots of analysis. Quite presciently, he concluded his book with the words, “The propaganda steamroller attempts to flatten analysis. For analysis can only mean dissent. And dissent cannot be tolerated.” Both Varoufakis and Connolly ended up being treated by the powers that be in very similar fashion.
Inevitably, it was a Greek writer, Plutarch, who is credited with the earliest known reference to messengers being shot. Lots of similar warnings were made over many years. In the early 1990s, a gathering of the great and the good heard an undersecretary at the US Treasury, David Mulford, decline to answer a question about Europe's obsession with currencies with the words, "I don't get involved in religious disputes."
Some reports coming out of Brussels today speak in terms of the Protestant (or Calvinist) North ganging up on the Catholic South. If some things never change, at least one thing is now fundamentally different: who can claim that the great euro experiment has been a success?
Nobody has any idea about what happens next but at least most observers agree on one thing: we cannot go on as we are. The only circumstances that will allow for Greece’s third bailout to work will be a magical resumption of growth, something that nobody expects. It could happen, but we are witnessing one the biggest rolls of the economic dice in history.
We are just one recession away from catastrophe, whether that involves the Greek economy or anywhere else in the euro area. Of course, catastrophe might be an apt description of what we have already achieved. The IMF seems to have belatedly rediscovered its proper mandate, unlike the ECB which has been widely criticised for its inability to act as a proper lender of last resort.
The Greeks, presumably, have always fought Grexit on the grounds that the consequences would be dire. But as we observe the ongoing shrinking of the Greek economy and the fracturing of its government, we could be forgiven for thinking that we have somehow delivered the forecast outcome of Grexit without actually doing it. All of the downside has been achieved without any of the benefits.
Small countries on the periphery of all of this would be well advised to keep their heads down. But not buried in the sand. Clear and manifest German hegemony may or may not last. We need to hope for the best – without having any idea what that might mean – while quietly planning for the worst. That could take many forms, the worst being the long-mooted fracturing of the euro, perhaps into two blocs, probably chaotically. A planned split would be oxymoronic: as soon as the plans became public, events would most likely spiral out of control.
Escape route
The steps necessary to put the euro on to a sustainable footing have been known for decades. But integration of economies involves policies no politician can contemplate. It’s like the war on drugs: nearly everyone now openly accepts that the war was lost long ago, it impoverishes nations and creates uncontrollable criminality. Legalisation, the only solution, is beyond the system’s capacity to deliver. Similarly, Europe is incapable of doing the obvious.
Columbus delivered an escape route for millions of Europeans tired of conflict and poverty. Subsequently, since 1492, as historian Norman Davies pointed out some time ago, only two European nations have maintained an unchanged, separate sovereign existence. That's how much change, often violent, that Europe has experienced.
The euro – an attempt to escape history – is in danger of failing to exorcise past ghosts. The only conclusion is that a new drive to fully implement the vision of Europe's founders must now begin. Germany may well have reached the same conclusion but with only a very short list of countries in mind.
The alternative – muddle through – just doesn’t work. It risks chaos. But it is hard to escape the conclusion that this is exactly where we are heading.
