The Telegraph, by Peter Oborne
Many of the biggest losers from the Wall Street Crash were not those greedy speculators who bought at the very top of the market. There was also a category of investor who recognised that stocks had become badly overvalued, sold their shares in the summer or autumn of 1928, then waited patiently as the market surged onwards to ever more improbable highs.
When the crash came in October 1929, they felt thoroughly vindicated, and waited for the dust to settle. The following spring, when share prices had consolidated at around a third lower than the all-time high reached the previous year, they reinvested the family savings, probably feeling a bit smug. Then, on April 17, 1930, the market embarked on a second and even more shattering period of decline, by the end of which shares were worth barely 10 per cent of their value at their peak. Those prudent investors who had seen the Wall Street Crash coming were wiped out.
There was one crucial message from yesterday’s shambolic and panicky eurozone summit: today’s predicament contains terrifying parallels with the situation that prevailed 80 years ago, although the problem lies (at this stage, at least) with the debt rather than the equity markets.
After the catastrophe of 2008, many believed and argued – as others did in 1929 – that it was a one-off event, which could readily be put right by the ingenuity of experts. The truth is sadly different. The aftermath of that financial debacle, like the economic downturn after 1929, falls into a special category. Most recessions are part of the normal, healthy functioning of any market economy – a good example is the downturn of the late 1980s. But in rare cases, they are far more sinister, because their underlying cause is a structural imbalance which cannot be solved by conventional means.
Such recessions, which tend to associated with catastrophic financial events, are dangerous because they herald a long period of economic dislocation and collapse. Their consequences stretch deep into the realm of politics and social life. Indeed, the 1929 crash sparked a decade of economic failure around much of the world, helping bring the Weimar Republic to its knees and easing the way for the rise of German fascism.
So we live in a very troubling period. The situation is very bad in the United States, where ratings agencies are threatening the once unimaginable step of downgrading Treasury bonds, and Congress is consumed by partisan wrangling over raising the nation’s debt limit. But it is desperate in Europe, because the situation has been exacerbated by a piece of economic dogma.
The faith of leading European politicians and bankers in monetary union, a system of financial government whose origins can be traced back to the set of temporary political circumstances in the immediate aftermath of the Second World War, and which was brought to bear without serious economic analysis, is essentially irrational. Indeed, in many ways, the euro bears comparison to the gold standard. Back in 1929, politicians and central bankers assumed that the convertibility of national currencies into gold (defined by the economist John Maynard Keynes as a “barbaric relic”) was a law of nature, like gravity. European politicians have developed the same superstitious attachment to the single currency. They are determined to persist with it, no matter what suffering it causes, or however brutal its economic and social consequences.
There is only one way of sustaining this policy, as the International Monetary Fund argued ahead of yesterday’s summit in Brussels. Admittedly, the IMF should not be regarded as an impartial arbiter. Theoretically, its responsibilities stretch around the globe, but it has become the plaything of a reactionary European elite, of whom its latest managing director, Christine Lagarde (a dreadful and backward-looking choice), is the latest manifestation. However, the IMF was entirely correct when it pointed out that the only conceivable salvation for the eurozone is to impose greater fiscal integration among member states.
This advice was finally being taken yesterday – and it is almost impossible to overestimate the importance of the decision which European leaders seemed last night to be reaching. By authorising a huge expansion in the bail-out fund that is propping up the EU’s peripheral members (largely in order to stop the contagion spreading to Italy and Spain), the eurozone has taken the decisive step to becoming a fiscal union. So long as the settlement is accepted by national parliaments, yesterday will come to be seen as the witching hour after which Europe will cease to be, except vestigially, a collection of nation states. It will have one economic government, one currency, one foreign policy. This integration will be so complete that taxpayers in the more prosperous countries will be expected to pay for the welfare systems and pension plans of failing EU states.
This is the final realisation of the dream that animated the founders of the Common Market more than half a century ago – which is one reason why so many prominent Europeans have privately welcomed the eurozone catastrophe, labelling it a “beneficial crisis”. David Cameron and George Osborne have both indicated that they, too, welcome this fundamental change in the nature and purpose of the European project. The markets have rallied strongly, hailing what is being seen as the best chance of a resolution to the gruelling and drawn-out crisis.
It is conceivable that yesterday’s negotiations may indeed save the eurozone – but it is worth pausing to consider the consequences of European fiscal union. First, it will mean the economic destruction of most of the southern European countries. Indeed, this process is already far advanced. Thanks to their membership of the eurozone, peripheral countries such as Greece and Portugal – and to an increasing extent Spain and Italy – are undergoing a process of forcible deindustrialisation. Their economic sovereignty has been obliterated; they face a future as vassal states, their role reduced to the one enjoyed by the European colonies of the 19th and early 20th centuries. They will provide cheap labour, raw materials, agricultural produce and a ready market for the manufactured goods and services provided by the far more productive and efficient northern Europeans. Their political leaders will, like the hapless George Papandreou of Greece, lose all political legitimacy, becoming local representatives of distant powers who are forced to implement economic programmes from elsewhere in return for massive financial subventions.
While these nations relapse into pre-modern economic systems, Germany is busy turning into one of the most dynamic and productive economies in the world. Despite the grumbling, for the Germans, the bail-outs are worth every penny, because they guarantee a cheap outlet for their manufactured goods. Yesterday’s witching hour of the European Union means that Germany has come very close to realising Bismarck’s dream of an economic empire stretching from central Europe to the Eastern Mediterranean.
History has seen many attempts to unify Europe, from the Habsburgs to the Bourbons and Napoleon. This attempt is likely to fail, too. Indeed, a paradox is at work here. The founders of the European Union were driven by a vision of a peaceful new world after a century of war. Yet nothing could have been more calculated to create civil disorder and national resistance than yesterday’s demented move to salvage the single currency.