Political tale-telling is splitting the eurozone apart

The biggest threat to the bloc is the toxic combination of mistrust and untruths

Wolfgang Münchau


Matteo Salvini, left, and Luigi Di Maio. Italy's populist government is not an electoral accident, as the country's moderate political commentators want us to believe © AFP


Narratives matter. A friend once warned me not to use the word “narrative” because it was a convoluted way of saying “stories”. But narratives are special kinds of stories. They are the tales we keep telling each other, until we believe them.

I have been following narratives on European integration in the largest member states of the EU with mounting disbelief. One of the causes of the vote for Brexit was the language of Euroscepticism and the lack of an intelligent counter-message. Similar stories are now driving the eurozone apart.

A well-known political columnist at Der Spiegel recently referred to Italians as beggars lacking the decency to say thank you. Behind this disgraceful insult stirs an all-too-widespread belief among Germans that they are bankrolling the EU — and Italy, in particular. But the truth is that Italy is a net contributor to the EU budget, runs surpluses in its primary fiscal balance and its current account, and has never been a recipient of German bailouts.

Another common line in Germany, but also in many English-speaking countries, is that France is an economic basket case. Few proponents of this idea seem aware of the fact that France’s economic performance has been similar to that of Germany since the creation of the eurozone almost 20 years ago.

What is particularly shocking about these spurious narratives is not only the contempt and ignorance they reflect, but the casual way in which they are cobbled together. They are part of common folklore and judged to be true because everybody has been saying the same kind of stuff for years.

This tendency could be seen in the UK during the run-up to the Brexit referendum. If people are told to associate the word “Brussels” with “bureaucrat” for two decades, why should we be shocked when they vote to cut loose from the hated bureaucracy?

The lesson I draw from Brexit is that narratives shape politics. Italy’s populist government is not an electoral accident, as moderate Italian political commentators want us to believe. It is what happens when a prolonged economic downturn drives the electorate against the establishment. Italy used to be one of the most pro-European countries. According to the latest Eurobarometer survey, it is now the most Eurosceptic.

Narratives also matter in policy analysis. Here we face a different crisis — one of self-censorship. At the height of the eurozone crisis, I was briefly drafted into an expert group to help come up with ideas. I remember well the opening statement by a German economist, who announced that the group should not even consider proposals which the German government had already rejected. This was a reference to a mutualised eurozone bond— the “He-Who-Must-Not-Be-Named” of discussions about eurozone policy. Reading a recent report by 14 French and German economists on the eurozone, which was astonishing for its lack of ambition, I had a sense of déjà vu.

I know many economists who agree privately with the assertion that the eurozone requires a mutualised safe asset. But when they put their names to reports on the subject, they begin to talk like politicians.

If realism is your guide, as it should be, then the reality of the eurozone should be all that matters. The argument in favour of mutualised bonds is that, without them, the eurozone’s financial system can never be stabilised. The eurozone is a monetary union in a semi-permanent state of crisis.

I understand the argument that political boundaries must be respected. Eurozone crisis resolution is about compromise and adopting second or third-best alternatives. But I shuddered when I heard political commentators gushing that Angela Merkel was to be congratulated when she finally gave her response to Emmanuel Macron on eurozone reform.

The German chancellor said no to almost everything the French president has proposed. The only meaningful concession is a short-term lending facility for countries in trouble — but on conditions likely to be unacceptable to Italy in particular. I have not heard anyone even trying to explain how this could help reduce instability.

The same goes for the idea by the 14 economists to create a synthetic eurobond through debt securitisation. This is the same method used to create the toxic financial instruments in the previous decade. The narrative is similar to what it was then. The risks are apparently not correlated, we are told. Except that the strong co-movement of Italian and Greek bond yields would suggest otherwise.

The only known antidote to misleading narratives such as these is truth-telling. The biggest threat to the eurozone now is the toxic combination of the preachers of hatred and those who dare not speak truth to power.

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