In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national…
I read this New York Times article (June 9. 2012) – Europe Needs a German Marshall Plan – by a history professor at Harvard Charles S. Maier with some interest. And then a few days later (June 12, 2012) – the other end of the spectrum appeared – Why Berlin Is Balking on a Bailout – written by the conservative (but difficult to stereotype) German economics professor Hans-Werner Sinn. The two articles demonstrate that selective versions of history always fail, especially when they are overlaid and driven by a blinkered ideology that prevents a full understanding of why things happen. The Harvard historian understands how European reconstruction occurred and has articulated what that means for the current European malaise. The German economics professor, imbued with Ordo-liberalism, cannot see beyond his blinkers.
The NYT article on the Marshall Plan was accompanied by this graphic which I thought was indicative. Note the goal expressed – collective welfare – which really defined the policy framework centred on full employment and income security and the major responsibility that government’s assumed for these aspirations. Consider what we hear today – welfare of all has become “satisfy the markets” or “maintain credit ratings” and such.
The policy-making leaders have somehow seduced us into thinking that a small sectoral interest group (the bond markets) deserves priority over the 50 per cent and rising of Spanish youth (the ones who want to work) who are unemployed with little hope of a job opening in the next 3 years. Somehow 25 per cent of the labour force unemployed indefinitely is fine to these characters.
Why we accept that sort of logic and aspiration is beyond me. Why we don’t demand that the central banks and treasuries that issue the currency do their job and stop the massive daily income losses arising from the output gaps – manifesting in personal terms as unemployment, hidden unemployment, underemployment – and worse in the rising suicide rates and premature deaths. It is beyond comprehension – the grip that this pernicious neo-liberal ideology has on all of us.
The other irony (and tragedy) is that even though the policy leaders (especially in Europe) sprout these aspirations, the strategy are following a strategy (is that too generous an assessment?) which is actually not what the “bond markets” want (as evidenced by the spiralling spreads in recent days between Spanish and Italian debt relative to the German benchmark.
In that context, the Harvard historian writes:
EUROPEAN leaders … have repeatedly committed to providing emergency aid … [but] … they haven’t yet accepted that saving the euro is more vital than clinging to the constraining rules that govern the European Central Bank. They are debating their future with a diminished sense of history and of the alternatives available to them. They should recall Secretary of State George C. Marshall’s grave warning, upon returning from Germany in early 1947: “The patient is sinking while the doctors deliberate.”
He also notes that the “former patient is now the principal doctor”.
The perversity of the current ideological trap that the Germans are imposing on the rest of Europe is that it is informed by a very selective and misunderstood period of history – the Wiemar years. They are obsessed with that historical epoch and have largely ingrained into the cultural fabric an ill-constructed version of what actually happened during those hyperinflation years.
The manifestation is “fear of the trillion mark coin”. But that fear is not well-founded and certainly no current events should invoke the elevation of that fear.
Please read my blog – Zimbabwe for hyperventilators 101 – for more discussion on this point.
The modern Germans, so self-assured, have forgotten that in the 1930s, the gross acts of the Nazis aside, they used strong fiscal interventions to increase growth.
They also have forgotten the period after the war – when as the Harvard historian notes they were the “patients” and were put back on their feet via a massive fiscal injection.
The article notes the contradictions in current German pronouncements. They want “more Europe” – and have said they want “more coordination of policies and more common decision-making” but they will never give up their own autonomy. They will never accept that Greece is part of a “new country” where Germany and Greece are sub-national states with equal entitlements to the common wealth.
Australia is a true Commonwealth and we have very unequal federal transfers between the member states and very unequal contributions to allow those transfers to take place.
The Germans say that they have demonstrated – in the unification – that they can merge with poorer nations (East Germany). But that was a merger of a common language, culture, etc which had been split by politics. It was like the Greeks getting Rhodes back from the Italians after the Second World War (only on a different scale and with different challenges – given the industrial bases etc).
There is no way – given my understanding of the European history and psyche that the Germans will be prepared to cede their autonomy and join a true Commonwealth of Europe with the Greeks and the Italians etc. For the Eurozone to work that is what is required.
The Harvard historian notes that such unity:
… will not be created simply through the European Union’s recent “fiscal compact” extracted by Berlin, which provides for automatic but unenforceable fines designed to encourage budget orthodoxy.
The fiscal compact is a move in the opposite direction to what is required. It will ensure that the nations who sign up for it are incapable of sustaining full employment and provide economic conditions within which prosperity can flourish.
The fiscal compact will guarantee that the future for Europe is austere and grim.
Instead, the article proposes a Marshall Plan redux:
It is time for Germany, once the recipient of aid, to design its current policies with the same sense of urgency and vision that America did after World War II with the Marshall Plan, a farsighted program of assistance for the reconstruction of Europe. The Continent is vastly wealthier today than it was then, but the key issue remains how to overcome economic stagnation without imposing painful austerity that strengthens extremist parties and endangers democratic politics.
I will write another day on what the dimensions of this might be in the current era and compare them to how the Marshall Plan was designed and implemented following the Second World War.
But we should be clear – it was a growth strategy not a budget containment strategy. It was conceived and implemented in an era where other major policy statements (the post WW2 White Papers) were articulating the role for fiscal and monetary policy – to ensure aggregate demand was stabilised around full employment. To promote strong public service capacities and public infrastructure.
Austerity was what the Marshall Plan was seeking to escape.
Some claim that the austerity conditions – internal devaluation (that is, wage cutting) and retrenchment of public services and pensions etc – was part of the Marshall Plan too.
The Harvard professor debunks that ahistorical view:
In fact, the Marshall Plan worked because it indefinitely suspended conditionality while nudging recipients toward eventual reforms. Postwar American leaders repeatedly postponed austerity requirements when confronted with French and Italian tax evasion and budget deficits. They let Marshall Plan funds cover budgetary deficits, wagering correctly that growth would ultimately wipe out the deficits.
In terms of my theme in yesterday’s blog – Technocrats move over, we need to read some books – history is important because patterns of behaviour repeat. Contexts may change, but patterns repeat.
One of the hallmarks of the neo-liberal attempt to salvage repute given the ideology was exposed by the crisis is that the leading proponents have an army working to continually revise history. They are continually “photoshopping” the bits they want us to forget out of the picture they present.
We should all be reading books about the Great Depression and the post WW2 recovery period because the lessons are clear. The history professor clearly knows that:
… rather than conditioning assistance on policies of immediate austerity that will only worsen depression – the outcome that the architects of the Marshall Plan sought to avoid – creditor countries like Germany would be wise to tie debt reduction and loan repayment to the resumption of economic growth.
The article also makes an interesting point. Even if the Greeks and Spaniards leave the Eurozone, they don’t leave Europe:
Their European neighbors will have to provide assistance whether they are in the euro zone or outside; after all, unemployed Greeks and Spaniards can and will migrate to northern Europe in search of jobs.
Juxtapose that with the views expressed by Hans-Werner Sinn in his NYT article yesterday – Why Berlin Is Balking on a Bailout.
His latest article contains some extraordinary statements.
His aim is to lecture Americans on what is best for Europe. He claims that “President Obama is urging Germany to share in the debt of the euro zone’s southern nations” but is wrong to do so.
… such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.
That hasn’t stopped the ECB conducting its Securities Markets Program (SMP) which has allowed it to accumulate billions of euros worth of government debt via secondary bond market purchases, which has had the effect of taking Greece “out of the markets” and preventing a collapse of the whole monetary system.
Further, more recently, the ECB has been supporting the system via its Long-Term Refinancing Operation (LTRO) – aka cheap loans to banks via the ECB to allow them to purchase government bonds. The troubled Spanish banks have been buying massive quantites of Spanish government debt with the cheap loans.
None of these initiatives have been “rejected by Germany’s Constitutional Court”.
And when you compare the current real damage that the austerity is causing – unemployment, poverty etc – one has to ask is what the German Constitutional Court thinks something that should be prioritised in the debate. That tells me that there is something wrong with the German Constitution that the political leaders should be addressing with some haste.
There was a shocking article in today’s Fairfax papers (Australia) – Greek patients left without medicine as money runs out – which brings the policy madness down to human levels that we should all be able to understand – down from the lofty nonsense about “placating markets”.
Sinn’s second objection to bailouts is that:
… a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.
If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.
That is an extraodinary statement given that the crisis is all about the massive failure of the “liability principle” to allocate investment resources appropriately.
Recall that the massive pre-crisis German surpluses were not being used to reward their own workforce in the form of real wages growth. Quite the opposite. Given the stifled domestic demand, the German funds flowed – yes, south! The profligate Greeks got their money from the Germans (and French) and so did the Spaniards.
How much “capital” has been wasted through the folly of the financial markets as a result of this crisis.
Further, bailouts should rather be constructed as “fiscal support” for growth. Then, as in the Marshall Plan era the strategy would work.
The bailout strategy currently in place will never work because it is accompanied by austerity which kills growth and therefore kills the wherewithall to pay back the debt. It just eats itself up.
Sinn then shows he is somewhat of a neo-liberal maverick by arguing that to really accomplish “systematic risk-sharing between the states of Europe”:
… the countries should first form a common nation, with a constitution, a common legal superstructure, a monopoly on power to ensure obedience to the law and a common army for external defense.
I agree. And the political reforms would have to be supplemented by a policy slant that uses the commonwealth to ensure there is full employment across the newly-created federation.
Sinn doesn’t see this happening “in the foreseeable future, because the euro zone countries, above all France, are unwilling to give up sufficient sovereignty”. The gratuitous dig at France made me laugh. I think Berlin would join France in resisting that.
He also claimed that the bailouts have failed:
We are, however, already in the fifth year of generous liquidity help to Europe’s uncompetitive members …
But the “generous liquidity help” has been accompanied by a self-defeating austerity approach. I agree with him that the strategy is not working. But I include the whole strategy including the austerity.
Sinn touches on the Marshall Plan argument:
Some critics have argued that Germany, having benefited from the Marshall Plan, now owes it to Europe to undertake a similar rescue. Those critics should look at the numbers.
Greece has received or been promised $575 billion through assistance efforts, including Target credit, E.C.B. bond purchases and a haircut after a debt moratorium. Compare this with the Marshall Plan, for which Germany is very grateful. It received 0.5 percent of its G.D.P. for four years, or 2 percent in total. Applied to the Greek G.D.P., this would be about $5 billion today.
In other words, Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved. Why, Mr. Obama, is that not enough?
Again Dr Sinn should reflect on history.
Germany was able to grow very quickly on the relatively small assistance it received under the Marshall Plan because the rest of the world was pursuing strong fiscal-led growth as well.
Throwing money at Greece now while at the same time demanding that its government actively undermines all sources of growth and demanding other governments do the same thing (choking off the export-led recovery route) will never have the Marshall Plan outcomes.
Please read my blog – Fiscal austerity – the newest fallacy of composition – for more discussion on this point.
Selective versions of history always fail, especially when they are overlaid and driven by a blinkered ideology that prevents a full understanding of why things happen.
These two articles demonstrate that point clearly. The historian understands how European reconstruction occurred and has articulated what that means for the current European malaise. The German economics professor, imbued with Ordo-liberalism, cannot see beyond his blinkers.
Please read my blog – Why history matters – for more discussion on this.
That is enough for today!