The travails of ‘Europe’- II

First Published: 2015-08-08

With the Greek bailout agreement, the unravelling of Germany’s "virtual empire" seems imminent

Read Part I here…

The tragicomedy which was the agreement reached between Greece and its sleep-deprived Eurozone partners in the early hours at the end of last week, brought out into the open a number of points made in my last column (The Travails of ‘Europe’ – I, 19 June 2015).

First, this was an agreement imposed on Greece by Germany as the hegemonic power of the "virtual empire". The Greeks had hoped with their referendum last week to assert the sovereign will of the people to relax austerity, to get debt relief on a debt burden now nearly 200 per cent of GDP – all while remaining in the Euro. The Germans made the Greeks capitulate by forcing the country to place itself under a foreign European bureaucratic monitoring force under German control which would monitor the agreement and take control of Greek public assets. The Greeks were thus forced to cede their national sovereignty over the economy to the imperial power – Germany. "’They crucified [Greek Prime Minister Alex] Tsipras in there,’ a senior European official who had attended the summit remarked. ‘Crucified’." (‘German brinkmanship tests cohesion of euro zone’, FT, 14 July 2015)

The second was that the German finance minister formally proposed a "time out" for Greece from the euro, which was only dropped at French insistence from the final deal. Exiting the euro is now no longer impossible. It is no longer an irrevocable monetary union leading to a democratic political union.

The third was that it opened a rift between France and Germany, with France becoming the champion of the anti-austerity Southern European countries. This means a continuing confrontation with Germany and the other North European countries, who are already chafing at the erosion of the "no bailout clause" of the euro treaty – inserted to insure euro zone taxpayers against paying the debts of the zone’s incontinent members.

Taken together, as the likelihood of a humiliated and destitute Greece fulfilling its side of the deal is less likely than that of the new colonial subjects rebelling against the German hegemony, the unravelling of the "virtual empire" discussed in my last column seems imminent. There is a profound irony in this likely denouement of the Greek crisis. For it was the overthrow of the Greek colonels in 1974, where the restoration of democracy was linked to accession to join the EEC (the EU’s predecessor), that became the model for the extension of the "virtual empire" to Spain, Portugal, and Eastern Europe.

With the economic pillar of the US strategy of dealing with the German question, (discussed in my last column) likely to disintegrate, what of the military pillar represented by NATO? With the fall of the "evil empire" it seemed that NATO was unnecessary and had lost its purpose. But, with a newly revanchist Russia annexing Crimea, threatening Ukraine and its near abroad, NATO has again become vital to protect the eastern borders of Peninsular Europe.

The US which had guaranteed the peace in Europe during the Cold War with men and materiel, has wanted the Europeans to bear the major burden of collective security through NATO. But most of the members, particularly Germany, are reluctant to spend even the two per cent of GDP that NATO members are required to spend on defence. This reflects a trend identified by Tony Judt (A Grand Illusion? An Essay on Europe). After the Second World War the Europeans, given their common memory of the war, "became collectively, ‘defeatist’ – not only unwilling to fight one another but wary of any commitment to fighting at all… They showed a common reluctance to express any confidence in their own state’s military capacity, little support for high military expenditure, and no sustained inclination to treat military prowess as a measure of national greatness… The two outstanding exceptions to this pattern are Great Britain and Finland – the only two West European states to have emerged from the Second World War with a creditable military record of which to boast."

After German reunification there was the fear of a united Germany throwing its weight around. This proved unfounded. "The whole country was ‘afraid of power’, and indeed military conflict. ‘War – that is something we leave to the Americans’ was the prevailing view for most of the decade to come" (Brendan Simms, Europe).

The growing fragmentation of "Europe" is recreating the old geopolitical divides in Europe. As George Friedman (‘A Net Assessment of Europe’, Stratfor, May 26, 2015) noted: "The Continent’s primordial issue is the relationship between the largely unified but poorer mainland, dominated by Russia, and the wealthier but much more fragmented peninsula. Between Russia and the peninsula lies a borderland that at times has been under the control of Russia or a peninsular power, or more often divided". This borderland has two tiers: the first and furthest east is Belarus, Ukraine and parts of the Baltics; the second consists of Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria.

With the collapse of the Soviet Union, this second tier was absorbed into the EU, which "provided a united framework for expansion and an attractive option for newly sovereign states in the borderland." This posed a strategic threat to Russia, as the Baltics were incorporated in the second tier and the dividing line and buffer between the peninsula and Russia became Belarus and the Ukraine. Though the Europeans looked upon this integration as benign, the Russians "saw something they had never seen before: integrated institutions, with ambitions amongst some members to become a federation of nation states that might go well beyond economics… Without buffers, a united Europe with a shifted intent might well pose an existential threat to Russia". This explains Vladimir Putin’s revanchist turnaround.

However, the likely fragmentation of the EU, with the divergent interests of Germany, southern Europe, France and Central and Eastern Europe coming to the fore, has – despite the fall in oil prices and the sanctions imposed on Russia after its absorption of Crimea and support for the Ukrainian rebels – given Russia some relief. With the consequent rise in the relative power of Russia, the US once again, as the offshore balancer, will reluctantly be drawn into the European fray.

First published at the Business Standard and posted here with the kind permission of the author.


Deepak Lal is the James S. Coleman Professor Emeritus of International Development Studies at the University of California at Los Angeles, professor emeritus of political economy at University College London, and a senior fellow at the Cato Institute. He was a member of the Indian Foreign Service (1963-66) and has served as a consultant to the Indian Planning Commission, the World Bank, the Organization for Economic Cooperation and Development, various UN agencies, South Korea, and Sri Lanka. From 1984 to 1987 he was research administrator at the World Bank. Lal is the author of a number of books, including The Poverty of Development Economics; The Hindu Equilibrium; Against Dirigisme; The Political Economy of Poverty, Equity and Growth; Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance; and Reviving the Invisible Hand: The Case for Classical Liberalism in the 21st Century.

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