There are moments in history when the impossible suddenly becomes the inevitable. The European leaders attending the latest in the long procession of Brussels summits to save the euro could do worse than reflect on one of these break points.
The other day I heard a distinguished former diplomat reminisce about the decade he had spent shadowing the Soviet Union. Through the 1980s, he told a gathering convened by Chatham House and the US Council on Foreign Relations, the west was absolutely sure of two things: the Soviet system was unsustainable; and it would last forever. As the diplomat spoke everyone in the room turned their minds to the euro.
Westerners were not alone in falling for the Soviet Union’s Potemkin façade. Policy makers in Moscow made the same mistake. Earlier this year, Ivan Krastev, the brilliant Bulgarian scholar and commentator, brought together a group of Russian experts and historians to reconstruct the last years of the Soviet imperium.
Hosted by the Institute for Human Sciences in Vienna, the experts explained the dynamics of Soviet disintegration to a small number of European Union officials. They sought to explain how an event that seemed unthinkable even as late as the fall of the Berlin Wall in 1989 appeared so obviously inevitable a few years later. The answers suggested the eurozone indeed has something to learn from the experience as it grapples with its own existential crisis.
The conviction that, whatever else happened, the state and socialist system were immutable, proved the downfall of Soviet policy makers. If you think that something cannot happen, then you are unlikely to take the necessary preventive action. Mr Krastev notes that Mikhail Gorbachev’s mistake was to believe in the innate superiority of socialism. That meant it could be sustained but not reformed.
At the moment of collapse in 1992, the irresistible impulse for break-up came from the centre – it was Russia rather than the peripheral states that seceded. As Mr Krastev puts it: “It was Russia’s decision to get rid of the Union and not the ever present desire of the Baltic republics to run away from it that decided the fate of the Soviet state.”
So for the Soviet Union should we read the eurozone; and for a secessionist Russia a disgruntled Germany? Well, no and yes.
No, because the eurozone is not an empire built on a doomed economic system. Whatever the design flaws, it rests on a willing pooling of sovereignty by democratic states. Nor is the single currency the cause of Europe’s economic ills. The global crash was a product of the Anglo-Saxon model of liberal financial capitalism. Those who blame the eurozone for the condition of, say, Spain should consider the dire plight of countries such as Britain and Hungary that kept their own currencies.
When the Soviet Union collapsed, maps of the continent had to be redrawn to include the dozen new states that emerged or re-emerged from the wreckage. National identities and boundaries would be untouched if the Germans reclaimed the Deutschmark, the French the franc and the Greeks the drachma.
Disintegration of the eurozone is not inevitable. The infuriating thing is that debtor and creditor countries alike broadly agree on what needs to be fixed. The requirement is for a mutualisation of both debt and of economic decision-making. The sticking point has always been one of sequencing.
Germany fears that if it gives ground too soon and agrees to eurozone bonds, its partners will pull back from both rigorous fiscal discipline and from a commitment to deeper integration of economic management. The Italians, Spanish, Portuguese and the rest argue that, in the absence of credible short-term support, their economies will remain trapped in the downward spiral of debt and deflation. Both sides are right. What’s missing is the trust to serve as the glue of compromise.
For all the differences, the parallels with the Soviet Union are still beguiling. I have lost count of the times I have been told by European politicians and central bankers that the euro will survive because, well, it was unthinkable to consider any other outcome. The cost of failure, this argument runs, would simply be too high.
Yet this conviction – and I am sure it is genuine – offers an increasingly threadbare shield against the gathering economic and political storms. The Soviets thought that doing nothing would preserve the status quo. They learnt subsequently that inaction is a decision like any other. To say that break-up of the euro would wreak havoc on the European and global economies will not of itself prevent it from happening.
As Mr Krastev observes, public opinion across Europe is turning against the single currency – or at least against the economic cost of sustaining it. At times of crisis, the popular response to “there is no alternative” may well turn out to be that any alternative is better.
We are not there yet. European leaders, however, need to recognise that there is nothing immutable about the eurozone – nor, for that matter, about the EU. These institutions are the product of historical circumstance and political vision. Today’s world is not the one imagined by the founding fathers of the EU nor by the architects of the single currency.
The end of the cold war served as midwife at the birth of the euro. The grand project of monetary union had been talked about many times before but it was collapsing communism and German reunification that produced the final push. Unlike the Soviet Union, the eurozone is not predestined to collapse under the weight of its own contradictions, but neither is its survival inevitable.
Copyright The Financial Times Limited 2012