Lost in a dream

Lost in a dream: An allegory on the crisis, the empire and on the beauty of Europe in three acts

Europe is more than its cur­rency. But this cur­rency, the Euro, has brought about many deba­tes. This is why Mar­tin Hei­pertz, aut­hor of this beau­ti­ful alle­gory, has cho­sen this topic to write about Europe, its voca­tion, its values and its destiny. This text was also publis­hed in the book “Com­mon Destiny ver­sus mar­riage of con­ve­ni­ence. What do Bri­tons and Ger­mans want from Europe?”, edi­ted by Iso­bel Fin­kel, John F. Jun­glaus­sen, Peter Litt­ger, Char­lotte Ryland. 

Mar­tin Hei­pertz is an eco­no­mist, civil ser­vant and aut­hor. He lives in Berlin. 

I was very tired. The S‑Bahn into Ber­lin was crow­ded, but I had got a seat, sur­roun­ded by the anony­mous mass of com­mu­ters. Most of them were rea­ding news­pa­pers and those were, as usual, full of the euro cri­sis. My smart­phone was, as is also usual, over­flowing with emails – Greece, Spain, ban­king union, and this was only the begin­ning of yet ano­t­her day. I glanced out­side. It was snowing. I fell asleep.

In my dream, three per­sons took their seats around me. Oppo­site me a man of an uncer­tain age and grey com­ple­xion, wea­ring a grey suit and rim­less specta­cles. His head was bald. Next to him sat a young boy with very old, sad, wise and friendly eyes. The boy wore a strange crown, made of eight pla­tes, the front one top­ped with a cross and a jewel­led arch that sprang to the oppo­site plate at the back of the boy’s head. In his right hand, clad with a red glove full of pearls and jewels, the boy held a sword. A gol­den ball with a cross was pla­ced in his left hand. Next to me sat a beau­ti­ful, blonde girl in her teens, her face was red as if she had come in from the sun and she was dres­sed in san­dals and an anci­ent Greek chi­ton which let me sense the deli­cate shapes of her body.

Crisis talks

The grey man began to speak:

You worry about Europe. But Europe is a uto­pia, a place that exists neit­her in geo­gra­phy nor in time but only thanks to men­tal con­struc­tions. What mat­ters about Europe is the idea of Europe.

I am the cri­sis. Look at me.

I unsettle you and ever­y­body. But what you can­not see is that I am the main cause of europe’s poli­ti­cal uni­fi­ca­tion during our time. I am a phe­no­me­non of finance and by mys­elf I do not care about Europe. Howe­ver, I act as cata­lyst for the poli­ti­cal uni­fi­ca­tion of the form­erly segre­ga­ted nation sta­tes that embar­ked upon mone­tary union some dozen years ago. My threat of insol­vency per­tains only to some of them, but its chao­tic per­cep­tion and sys­temic effects affect them all.

At the same time, remai­ning sepa­rate nation sta­tes ren­der them hel­pless and unable to coor­di­nate their efforts. On their own, they are impo­tent and you sense this, which is why you worry – and rightly so. Without Poli­ti­cal Union, you are all trap­ped in a vicious cir­cle. Your so- cal­led ‘euro­zone’ appears finan­cially sol­vent in aggre­gate terms com­pa­red to the US and Japan, but it has remai­ned nonexis­tent as a poli­ti­cal entity.

You are not more than a mere con­gre­ga­tion of nation sta­tes sharing a sin­gle cur­rency. Each of your nation sta­tes defi­nes its own inte­rests and course of action. Your governments natu­rally see me, the cri­sis, as a con­flict of dis­tri­bu­tion. This per­cep­tion mili­ta­tes against the fact that those very same nation sta­tes are already to a very large and even decisive degree inter­de­pen­dent. Worse still, their obvious inter­de­pen­dence even aggra­va­tes the said con­flict of dis­tri­bu­tion, because those coun­tries whose public finan­ces are under stress derive a cru­cial bar­gai­ning advan­tage from it. Because of inter­de­pen­dence, credi­tor coun­tries can be black­mai­led to extend ever lar­ger sums in sup­port of the deb­tors, while any attempts at disci­pli­ning the deb­tors are per­cei­ved by them as an impo­si­tion of austerity.

I do not need to tell you that the per­mis­sive con­sen­sus, in your respec­tive poli­ties, to con­ti­nue their enga­ge­ment in this vicious cir­cle of indeb­ted­ness, moral hazard and aus­terity is by now limi­ted. Deve­lo­p­ments are no lon­ger ten­able and the situa­tion is reaching one of those points in time that, with hind­sight, come to be qua­li­fied as ‘his­to­ric’.


The high Cost of borrowing

The grey man pau­sed and loo­ked out of the win­dow. When he resu­med, his grey eyes loo­ked strai­ght at me:

The ground for these deve­lo­p­ments was laid in pre­ce­ding deca­des of rising public and pri­vate debt in advan­ced indus­tria­li­sed demo­cra­cies, com­bi­ned with outra­ge­ous com­pla­cency and negli­gence vis‑à-vis the kinds of eco­no­mic imba­lan­ces that have piled up bet­ween your countries.

In the future, it will hardly seem intui­tive that demo­cra­tic gover­nance of these times pro­ved no more apt at pre­ser­ving sus­taina­bi­lity than democracy’s aut­ho­ri­ta­rian pre­de­ces­sors and com­pe­ti­tors. Theo­re­ti­cal explana­ti­ons of this phe­no­me­non point to cau­ses like the so-cal­led ‘defi­cit bias’ of public finan­ces among twen­tieth-cen­tury demo­cra­cies, imply­ing that voting con­sti­tu­en­cies of your still par­lia­men­tary forms of demo­cracy rou­ti­nely fall prey to ‘fis­cal illu­sion,’ indu­cing voters to tole­rate levels of government spen­ding that sys­te­ma­ti­cally over­shoot public revenues.

Your voting sys­tems and the reli­ance on poli­ti­cal par­ties and repre­sen­ta­tion through par­lia­ments (rather than the already emer­ging form of true, direct demo­cra­tic rule through the inter­net) cause a sys­te­ma­tic unde­re­sti­ma­tion of the public cost of state bor­ro­wing. A polity in that con­di­tion would carelessly shift onto future genera­ti­ons the bur­den of ser­vicing and redeeming its debt.

At the same time, the finan­cing of this debt has been faci­li­ta­ted bey­ond ima­gi­na­tion by the abundance of mone­tary liqui­dity and an array of finan­cial regu­la­tion favou­ring the accu­mu­la­tion of public debt by the finan­cial sec­tor. In addi­tion, this public debt has been lever­aged throughout the finan­cial sec­tor into equally obese amounts of pri­vate debt wit­hin your eco­no­mies, cor­po­rate and house­hold. The­re­fore, banks and governments of your age will be seen as two sides of the same, decrepit coin. This ent­ire era is drow­ning in debt, public and pri­vate, and this pre­cisely is the ground that has bred me, the crisis.

To make mat­ters worse for Europe, the incom­plete and solely mone­tary uni­fi­ca­tion of sepa­rate nation sta­tes with sepa­rate fis­cal poli­cies pro­du­ced an average inte­rest rate for the euro that, by defi­ni­tion, did not fit the cir­cum­s­tan­ces of any spe­ci­fic eco­nomy. Peri­pheral coun­tries had, during the early years of Mone­tary Union, been able to bor­row at exces­si­vely low inte­rest, allowing them to lose eco­no­mic com­pe­ti­ti­ve­ness and was­ting an ent­ire genera­tion through low pro­duc­ti­vity, while core coun­tries, pri­ma­rily Ger­many, had to undergo pain­ful adjus­t­ment in real terms at exces­si­vely high inte­rest rates, almost pushing it into deflation.

Fur­ther still, the money rai­sed through the per­va­sive and con­ti­nued build-up of debt was put to little use. Twen­tieth-cen­tury demo­cra­cies are bet­ter than auto­cra­cies but still noto­riously bad at inves­ting their resour­ces in an eco­no­mi­c­ally intel­li­gent way.

Their highly inef­fi­ci­ent so-cal­led ‘wel­fare sys­tems’ seek to cap­ture voting sup­port by redis­tri­bu­ting vast sums to poo­rer parts of the popu­la­tion in a large mess of spen­ding pro­gram­mes with limi­ted ratio­na­lity, while the very sub­stan­tial and mobile capi­tal gains and non- labour inco­mes of society’s richest seg­ments by and large remain spa­red from being put to that use. even worse, some of the poli­ti­cal sys­tems of your his­to­ric period are cap­tu­red by par­ti­cu­lar inte­rest groups behind a feig­ned mask of demo­cracy, explo­i­t­ing public resour­ces for their own cor­rupt, some­ti­mes cri­mi­nal, purposes.

In sum, exces­sive indeb­ted­ness and other ways of try­ing to belie the laws of eco­no­mics have become a per­va­sive deca­dence across all advan­ced eco­no­mies, in the public sec­tors of those demo­cra­tic nation sta­tes as well as in their pri­vate house­holds and busi­ness sec­tors. In most cases, the aggre­gate levels of public and pri­vate debt in each natio­nal eco­nomy now stand at, or even drasti­cally above, 200% of the respec­tive natio­nal inco­mes. Unit labour costs have only star­ted to come down. ine­qua­lity is rising, state func­tions imploding.

These pro­blems are not at all limi­ted to the mem­ber sta­tes of the Euro­pean Union; in many respects the ent­ire trend is led and in fact cau­sed by the decli­ning United sta­tes of Ame­rica, hitherto the lea­ding Wes­tern power. Japan is even worse off. But the insti­tu­tio­nal and finan­cial fab­ric of the euro­zone pro­ved par­ti­cu­larly con­du­cive to the build-up of the pro­blem and, sub­se­quently, is now par­ti­cu­larly vul­nerable. This is where we are and how my rule began. I, the cri­sis, have now taken over the helm.

The risk of contagion

I was dazz­led by this lec­ture by the grey man. He sen­sed my exhaus­tion and said:

Bear with me, I am almost done. Poli­ti­cal com­pla­cency and insti­tu­tio­nal defi­ci­ency ren­de­red the euro­zone ill-equip­ped for my arri­val in 2007 in the form of a glo­bal ban­king cri­sis. The burs­t­ing of a bub­ble in the US real estate mar­ket, cau­sed by glo­bal excess liqui­dity and regu­la­tory fail­ure, trig­ge­red a pro­cess of uncon­trol­led dele­ver­aging across glo­bal finan­cial mar­kets and expo­sed a num­ber of sys­temi­cally important insti­tu­ti­ons to bankruptcy.

The ban­king cri­sis was only brought under con­trol by shif­ting large amounts of pri­vate finan­cial risk onto public balance she­ets. In con­se­quence, the already unsus­tainable situa­tion of public debt quickly became a pro­blem for those euro­pean coun­tries that were most at risk as inves­tors with­drew their funds. As the first of several actor-vic­tims, Greece faced liqui­dity shor­ta­ges in late 2009 which rapidly evol­ved into full-blown state insol­vency. Alt­hough most euro­pean governments had ample pre-war expe­ri­ence with state bankruptcy, there was mas­sive uncer­tainty and fear with regard to its pos­si­ble con­se­quen­ces wit­hin the con­text of Mone­tary Union, and under the enor­mous degree of finan­cial leverage obtai­ned since the loo­se­ning of all mone­tary reins at the turn of the millennium.

The fra­gi­lity of the eurozone’s insti­tu­tio­nal edi­fice was pain­fully brought home to natio­nal lea­ders when they rea­li­sed that a pos­si­ble fail­ure of Greece could have simi­lar sys­temic con­se­quen­ces to those expe­ri­en­ced in the pre­ce­ding ban­king cri­sis as a result of the Leh­man bankruptcy. Expo­sure of the Ger­man and French domestic ban­king sys­tems to Greek government debt was signi­fi­cant, and, amidst an over­all lack of infor­ma­tion, there was con­crete but unclear risk of con­ta­gion throughout the finan­cial sys­tem. Addi­tio­nally, the feed­back loops bet­ween natio­nal ban­king and public sec­tors indi­ca­ted that the sol­vency cri­sis could spi­ral out of con­trol very fast. Given the pre­va­lent uncer­tainty and sheer fear, poli­ti­cal lea­ders shied away from the rest­ruc­tu­ring of Greek natio­nal debt. Ins­tead, they deci­ded to buy time by ben­ding the so-cal­led ‘no bail-out’ principle (which had been one of the foun­ding, mis­gui­ded self-deceits of the mone­tary union) and exten­ded emer­gency credits to Athens.

The ban­kers were very happy. Bai­ling out Greece also fai­led to stop or even slow down the con­ti­nued with­dra­wal of funds from peri­pheral euro­pean state debt more gene­rally. Soon after the first move, Ger­many and others were pres­sed to agree on a mas­sive bail-out fund for the ent­ire euro­zone, big enough to cover the refi­nan­cing needs of all peri­pheral coun­tries for about two years. Then the desire arose to use these funds for reca­pi­ta­li­sing the peri­pheral ban­king sectors.

Mean­while, the Greek pro­blem lin­ge­red on, pro­vi­ding spurts of cri­sis at regu­lar inter­vals whenever new funds had to be made avail­able in order to keep the coun­try afloat. The euro­zone became trap­ped in the path depen­dency of not having allo­wed Greece to default. sub­se­quently, the lia­bi­li­ties of insol­vent Greece had to be pain­fully rest­ruc­tu­red and some of them even con­ver­ted into trans­fers. Spain and par­ti­cu­larly Italy suf­fe­red from the con­ti­nued ten­si­ons, and paid ele­va­ted risk pre­mi­ums on their bonds, which in turn requi­red yet more Euro­pean support.

The moral hazard atta­ched to this state of affairs was both obvious and immense. Attempts by Ger­many, the Nether­lands and Fin­land at enfor­cing so-cal­led ‘con­di­tio­na­lity’ on deb­tor coun­tries, i.e. incen­ti­vi­sing them to regain mar­ket fun­ding on their own, see­med repeatedly frus­tra­ted, mainly by the impos­si­bi­lity of ‘pro­gramming’ any eco­nomy. This pro­gramming was par­ti­cu­larly impos­si­ble under harsh adjus­t­ment, but also in part because deb­tor coun­tries were cir­cum­ven­ting the aus­terity impo­sed on them as much as possible.

Credi­tors, after all, had to deal with sov­er­eign nati­ons rather than domestic ban­king sec­tors, and rea­li­sed that they were in no posi­tion to exert full influ­ence and con­trol over the use to which their funds were being put. Popu­lar resis­tance to the per­cei­ved expro­pria­tion of natio­nal wealth for the refi­nan­cing of for­eign debt grew rapidly in the credi­tor coun­tries. Still, deb­tor coun­tries under­went pain­sta­king attempts at reform and con­so­li­da­tion, paying a high social and eco­no­mic price and encoun­te­ring an intense poli­ti­cal back­lash against the aus­terity impo­sed on them. The sys­tem now is stret­ched to the limit and struggling to deal with a poten­tial fur­ther aggra­va­tion. thanks to your cen­tral bank, you can buy time. But the cri­sis is not over. Only unity is its solu­tion, so it will per­sist until and in order for you to unite.

This, my friend, is where we stand right now. Look at my face.

The grey man sig­hed, fixed his grey eyes upon me one final time and then sta­red moti­on­less out of the win­dow into the snow fal­ling over Ber­lin. With resi­gna­tion in his voice he said, barely audible:

I, the cri­sis, am not­hing but the nasty truth that comes to the fore when poli­tics igno­res rea­lity for too long. Poli­tics essen­ti­ally is about mana­ging change, and i come into play when poli­tics has fai­led to do its job. Unsus­tainable trends end. i wish you would use the time well that you have bought. My only hope is that these days you can be chan­ged through finance, rather than war.

The voice of empire

Now the young boy with the crown over his old eyes began to speak. His voice was clear like the tone of a bell.

I am the empire.

Let me exp­lain. Your poli­ti­ci­ans make for bad his­to­ri­ans. They focus on con­tem­porary affairs and they come from a con­text of post-war eco­no­mic inte­gra­tion. They are still deeply influ­en­ced by an urge to pre­serve peace among tra­di­tio­nally rival­rous Euro­pean nati­ons, which all too quickly used to fall out with each other and go to war. Their vision is fur­ther­more blo­cked by having grown so accus­to­med to the 19th and 20th cen­tu­ries’ model of the nation state that they find it incon­ceiva­ble, and cer­tainly not in their ves­ted inte­rests, to think of other forms of demo­cra­tic polity. to them, demo­cracy since the French revo­lu­tion seems to be inextri­ca­bly intert­wi­ned with the nation state. And the result of two world wars is homo­ge­nous nation sta­tes ever­y­where, even in the Balkans.

Tra­gi­cally, euro­peans are not aware that their petty natio­nal con­scious­ness oversha­dows cen­tu­ries of pre-natio­nal euro­pean history. To be euro­pean means to aspire to the empire. Every Euro­pean nation har­bours the impe­rial seed. remem­ber, the first poli­ti­cal uni­fi­ca­tion of Europe had occur­red in the form of the roman empire. its very notion was a mul­ti­na­tio­nal one, if one takes the ‘Pax romana’ to encom­pass all those ‘natio­nes’ that had come under the rule of an empire which, at its begin­ning, had sprung from the con­sti­tu­tion of a mere city state.

Historic commonwealth

Rome’s self-image as ruling the ent­ire known world was asso­cia­ted with the insti­tu­tion of the emperor its­elf, the ‘Cae­sar’, directly trans­la­ted into the Ger­man Kai­ser, and often reve­red as god-king. With the rise of Chris­tia­nity, the roman emperor came to sym­bo­lise the worldly ruler of a united (Chris­tian) world in anti­ci­pa­tion of the hea­venly empire ruled by God. Des­pite the later sepa­ra­tion of the roman empire into eas­tern and Wes­tern sphe­res, the impe­rial idea sur­vi­ved and was bequea­thed to the Ger­ma­nic suc­ces­sors of the West romans. More so than other kings whose claim to rule was also divine, but ulti­mately based on thinly vei­led mili­tary power, the Holy roman emperor alone could claim the legi­ti­macy which sprang from divine endow­ment, thanks to the empire’s con­vo­lu­tion with the Church. Until its demise at the hands of napo­leon, the ‘Holy roman empire of the Ger­man nation’ embo­died this idea and lin­ked it to a uni­ver­sa­list claim to encom­pass worldly princi­pa­li­ties into one trans­cen­dent polity before God.

The empire’s poli­ti­cal, finan­cial and often enough also mili­tary weak­ness did not stand in the way of its legal sys­tem faci­li­ta­ting the emer­gence of a cen­tral euro­pean com­mon­wealth of cul­ture and trade throughout the medi­eval ages. The empire was a com­pa­ra­tively peace­ful, libe­ral body poli­tic and the fatal, inter-euro­pean struggle for hege­mony fell to its mili­ta­rily more potent com­po­nent princi­pa­li­ties and exter­nal com­pe­ti­tors. Their worldly strife could not impede the trans­cen­dent call of the empire. But fol­lowing the Refor­ma­tion, its reli­giously inspi­red legi­ti­macy was dama­ged bey­ond repair, and it never reco­ve­red from the thirty years’ War. The pro­tes­tant swe­des were the first to claim hege­mo­nic domi­nance over cen­tral Europe in purely mili­tary and poli­ti­cal terms. Many other kings from France and Prus­sia fol­lo­wed, while the emperor hims­elf and even the Pope were redu­ced to world­li­ness, play­ing their cards just for the houses of Habs­burg or the Holy Sea.

Napoleon’s legacy

The boy was sad and now loo­ked very weak. His voice, howe­ver, was as clear and beau­ti­ful as before.

The empire deca­yed, like ever­ything that is made by man. none of the major rival king­doms in con­ti­nen­tal Europe gai­ned las­ting hege­mony – until post-revo­lu­tio­nary France under napo­leon. several aspects stand out con­cer­ning napo­leon. First, his auto­cracy rose from the rub­ble of the French revolution’s first attempt at demo­cra­tic rule, which had deca­pi­ta­ted the King – hor­ri­bile dictu – and under exter­nal pres­sure had quickly dege­ne­ra­ted into the ter­ror of the Jaco­bins. Second, napo­leon came to rule a France that had emer­ged from the revo­lu­tio­nary fur­nace as the world’s first nation state. Des­pite this fact, third, his stri­ving for euro­pean hege­mony quickly for­med a multi-natio­nal empire. Fourth, he took account of that by not only dis­po­sing of the Holy roman empire but para­do­xi­cally by crow­ning hims­elf emper­eur, suc­ces­sor to the Holy roman emperor, as if the void he had crea­ted quickly nee­ded to be fil­led and was not allo­wed to remain empty like today. Fifth, resis­tance to napo­leon gave birth to natio­na­lism across Europe, par­ti­cu­larly in the

Most con­tes­ted ter­ri­to­ries, those of rus­sia and Ger­many but also Italy and Spain.

The impe­rial idea of Europe vanis­hed under Napo­leon and the natio­na­lism that he ushe­red in. The impe­rial body was already dead but the idea of empire still remai­ned in ves­tige until the end of the First World War, tog­e­ther with the tit­les of Reich and ‘Holy roman’ Kai­ser, under the pro­tes­tant Hohen­zol­lern rulers of Prus­sia and Germany.

Fol­lowing that, the empire was ent­i­rely dis­credi­ted by the prepos­te­rous nazi allu­sion to it, coin­ci­ding with the ulti­mate excess of natio­na­lism and, almost iro­ni­cally, the most fero­cious attempt at uni­fy­ing Europe by mili­tary means since napo­leon. But both of these attempts, by napo­leon and by Hit­ler, floun­de­red in the Rus­sian plains – respec­tively 200 years and 70 years prior to the deve­lo­p­ments of the debt cri­sis during the early years of the third mill­en­nium that we have set out to exp­lain to you.

The boy with his strange crown was still very sad but loo­ked live­lily at me as he then continued:

So, natio­na­lism is what defi­ni­tely kil­led me, the empire. I am now truly dead, but no one can be resur­rec­ted without having been dead before.

The death of nationalism

The boy pau­sed again, smi­led first at the grey man then at the beau­ti­ful girl, natio­na­lism then resumed:

The wars brought about by natio­na­lism in turn kil­led natio­na­lism its­elf. The first post-natio­nal polity in Europe was, of course, Ger­many. Rebuil­ding after the second World War, Ger­many had acqui­red a pre­dis­po­si­tion to hand sov­er­eig­nty to the euro­pean federal level whenever the state suc­ces­si­vely regai­ned bits of it. In mili­tary terms, both West and east Ger­many had quickly re-armed only 10 years after the war, but their armies lacked a gene­ral staff and were tightly sub­mer­ged into the com­mand-and-con­trol struc­tures of their respec­tive mili­tary alli­an­ces. In poli­ti­cal terms, Wes­tern Ger­many under Ame­ri­can gui­d­ance immer­sed its­elf in Euro­pean inte­gra­tion to such an extent that it came to be cal­led an ‘eco­no­mic giant and poli­ti­cal dwarf’. Post-1945, Ger­many had cea­sed to play a geo­po­li­ti­cal role. true to that mould, it rea­dily aban­do­ned mone­tary sov­er­eig­nty in 1990 at the very same moment as it regai­ned poli­ti­cal sovereignty.

This com­pro­mise with France had become pos­si­ble since France in turn had already lost its mone­tary sov­er­eig­nty by peg­ging its for­eign exchange rate to the then Ger­man cur­rency, the deutsch­mark. This peg had in fact to be defen­ded by the Ger­man cen­tral bank, the Bun­des­bank, in a set of serious exchange rate tur­bu­len­ces throughout the 1980s and 1990s. By pur­suing mone­tary inte­gra­tion with a part­ner that was weak in poli­ti­cal terms but strong in eco­no­mic ones, France expec­ted to grow in rela­tive power. This alli­ance fell to pie­ces with the euro’s debt cri­sis. Beco­m­ing depen­dent on Ger­man credit, Europe moved into a limbo from where a return to nation sta­tes see­med even less plau­si­ble than the emer­gence of some form of post-natio­nal, post-hege­mo­nic euro­pean empire.

Unsur­pri­sin­gly, the other nati­ons fea­red Ger­man res­ur­gence, and at first mistrus­ted her pro­po­sal for Poli­ti­cal Union. It took time for them to under­stand that Ger­many had indeed left behind the sta­tus of a mature, sov­er­eign nation state since the second World War and ins­tead repre­sen­ted the post-natio­nal polity that was cho­sen to show the path of his­to­ric deve­lo­p­ment towards post-natio­nal post-hege­mony for the ent­ire euro­pean con­ti­nent, a path unblo­cked by the cri­sis and lying open to all other nati­ons of Europe.

Germany’s dilemma

The boy was now bea­ming and rocked back and forth on his S‑Bahn chair as if he was very excited:

Talk of Poli­ti­cal Union had sub­si­ded in Europe with the fail­ure of Maas­tricht and its foun­da­tion of a poli­ti­cally ampu­ta­ted Mone­tary Union, but some remi­nis­cence of the inte­gra­tio­nist dream resur­fa­ced in Ger­many three years into the debt cri­sis. The Ger­man lea­ders­hip unders­tood that it was faced with four radi­cally dif­fe­rent and extreme opti­ons: (i) aban­do­ning mone­tary union and re-intro­du­cing a natio­nal cur­rency, (ii) gra­du­ally but uncon­di­tio­nally giving in to the claims of the other mem­ber sta­tes for debt mutua­li­sa­tion, (iii) doing so under the con­di­tion of and in exchange for the euro­zone achie­ving poli­ti­cal union, and (iv) pro­vi­ding bridge loans to bankrupt mem­ber sta­tes while ensu­ring that these would be redeemed thanks to con­so­li­da­tion and reform.

Option (ii) was self-defea­ting, while option (i) was exclu­ded for two rea­sons. Firstly, debt mutua­li­sa­tion through fis­cal and mone­tary chan­nels had by 2012 already reached a point where the price of Germany’s exit would be pro­hi­bi­tive. This option was gone before the Ger­mans even dared to think of it.

Relin­quis­hing the chance to dis­miss the euro by then had become a ‘sunk cost’, in eco­no­mists’ par­lance; hence a Ger­man exit had become irrele­vant as an option. in addi­tion, by giving in to popu­lar demand and allowing the demise of the euro, the cor­ner­stone of the unfi­nis­hed inte­gra­tion of Europe, Ger­many would betray her natio­nal inte­rest in terms of post-war inte­gra­tion. ‘If the euro fails, Europe fails’ shows that Ger­many is well aware of her choice bet­ween a euro­pean future and the natio­na­list past. Hence, the opti­ons were nar­ro­wed down to eit­her (iii) or (iv).

In 2013, the jury is still out. Euro­pean inte­gra­tio­nists or federa­lists favour option (iii) and argue that Ger­many should use the finan­cial depen­dency of the other governments and recal­ci­trant inte­gra­tio­nists to push decisi­vely for poli­ti­cal union. inter­go­vern­men­ta­lists, howe­ver, are ada­mant to stick with option (iv), insis­ting that Ger­many only exten­ded credit lines that would have to be ser­viced and returned.

It is obvious that the via­bi­lity of both opti­ons hinge on their fea­si­bi­lity and that the fea­si­bi­lity of option (iv) is deter­mi­ned by a ‘pro­gramme coun­try’ acqui­ring ‘com­pe­ti­ti­ve­ness’ and suf­fi­ci­ently solid state finan­ces, allowing it to return to mar­ket-based refi­nan­cing, which in turn would enable it to ser­vice and redeem its debt to Ger­many and the other credi­tor coun­tries. Option (iv) does not work if people revolt against ‘aus­terity’. Rather than taking a stra­te­gic choice, Ger­man poli­ti­ci­ans throughout 2013 will pur­sue both opti­ons at once. They at the same time insist on the credit nature of the finan­cial assi­s­tance that Ger­many pro­vi­ded, while they also pro­pose empowe­ring the euro­pean Com­mis­sion (the pre­cur­sor of the Government of the euro­pean Fede­ra­tion) with veto rights over natio­nal fis­cal poli­cies, sub­ject to accoun­ta­bi­lity to the Euro­pean Par­lia­ment and under the legi­ti­macy of a directly elec­ted Euro­pean President.

In fact, history will choose. These ideas of fur­ther inte­gra­tion, of course, do not immedia­tely reso­nate and very few citi­zens at this time already intui­tively under­stand that this could well be the foun­ding moment of the nas­cent fede­ra­tion, tap­ping into cen­tu­ries of hitherto sub­mer­ged, anci­ent euro­pean pre-natio­nal, impe­rial memory. After all, a euro­pean Pre­si­dent, legi­ti­mi­sed by the demo­cra­tic sov­er­eign, will be no less than heir to the divi­nely endo­wed Holy roman emperor. they could be mighty or power­less – as long as such an office and such a per­son exis­ted, it was pos­si­ble to main­tain the ‘idea’ of the empire, the Reichsgedanke.

Memories of empire

I can resur­rect, you see. A popu­lace has bet­ter memory than its poli­ti­ci­ans, and the­re­fore my for­mer nati­ons will now start to remem­ber me and slowly wake up to their impe­rial destiny, be they in Ger­many, Italy or Spain, but also going back to encom­pass the Nether­lands and even France. All these nati­ons come from the same source. And, for the first time in history, they can build their empire together!

Let me finally tell you what should hap­pen to the pro­po­sal for poli­ti­cal union that in these days emer­ges in Ger­many and other coun­tries as well. The nas­cent empire (under the for­mal name of ‘euro­pean Fede­ra­tion’) and its con­sti­tu­ent nation sta­tes, regi­ons and free cities will coexist as legal per­sons and respect each other’s pre­ro­ga­ti­ves. Cer­tain pre­ro­ga­ti­ves will fall to the fede­ra­tion, and these will first and fore­most include mone­tary policy and the right to veto any con­duct of natio­nal fis­cal policy that risks dama­ging the inte­rests of the other nati­ons of the fede­ra­tion. the fede­ra­tion will also bear respon­si­bi­lity for exter­nal defence and secu­rity affairs as well as for­eign policy. ever­ything else belongs to the natio­nal level, to the regi­ons and to the free cities of the empire. And it is thus that the euro cri­sis of this early mill­en­nium is now finally tur­ning into the dawn of what huma­nity will one day call ‘Pax euro­paea’. And, by disen­tang­ling the sin­gle Mar­ket of the wider euro­pean Union from the nas­cent euro­pean Fede­ra­tion, even the United King­dom will be recon­ci­led and, for the first time in history, look ben­evo­lently on the emer­gence of a con­ti­nen­tal block while its­elf remai­ning in the outer ring for­med thus by euro­pean inte­gra­tion the boy see­med both exhaus­ted and very pleased.

I, the empire, am the principle of uni­ver­sa­lity app­lied to the poli­ti­cal realm. This is my father.

He was loo­king at the grey man of cri­sis and change And this is my sister.

He loo­ked at the girl.

Europe’s rallying call

At last the fine, hot-skin­ned girl got up, step­ped onto her seat and said impassionedly:

I am Europe.

I had thought so, and I was not sur­pri­sed that she pro­noun­ced her name in Greek: ‘Ευρώπη/Európē’. she was so beau­ti­ful that I had to force mys­elf to look at the grey man rather than into her face, so that I could con­cen­trate on what she was say­ing. she began to sing in a voice so clear that all the com­mu­ters around us let their news­pa­pers sink down in their hands, loo­ked up and finally also rose to their feet in agi­ta­tion. Her song was this:

Citi­zens of Europe, rise up! This is not just a finan­cial cri­sis. This is first and fore­most a cri­sis of con­fi­dence, and it can bring ruin on all of you if it is not solved.

But an act of your will, Euro­peans, can over­come it.

The idea of Europe was born in the minds of those who redis­co­ve­red the clas­si­cal world, of those who impo­sed the force of rea­son over supers­ti­tion. It inspi­red those who fought against tota­li­ta­ria­nism and who peris­hed for the ide­als of free­dom and justice.

Euro­pean unity is our hig­hest crea­tion. Erec­ted over the ruins of cen­tu­ries of war and gui­ded by the vision of those who resis­ted tota­li­ta­ria­nism in our nati­ons, euro­pean unity has given us demo­cracy, pro­spe­rity, secu­rity and equity. But this union of ours is still incom­plete, like an arch without its key­stone. This key­stone, be assu­red, is poli­ti­cal union in the form of a fede­ra­tion of europe’s proud nations.

Let us now at last com­plete our union through a fede­ra­tion of Euro­pean nati­ons, lest this cri­sis des­troys our future.

The key­stone is lying ready on the ground, before the eyes of archi­tects who have until now been dithe­ring and squ­abb­ling while the arch is las­hed in the storm. these archi­tects are our governments, and they were occu­p­ied by natio­nal paro­chia­lism, they were frigh­te­ned and clinging to the past. But we now call upon them to proceed.

We need one joint sov­er­eign to back our cur­rency, the euro. Without this com­mon sov­er­eign, our cur­rency risks fal­ling apart, brin­ging to ruin the wealth that it stores.

Euro­peans, your hour has come!

The time of diplo­macy is over. Too often our governments have fai­led in their duty to unite us. Only you, citi­zens of Europe, can take the key­stone in your own hands and crown that sple­ndid arch.

A fede­ra­tion of euro­pean nati­ons is a moral, his­to­ri­cal, poli­ti­cal and eco­no­mic neces­sity. Without it we will lose our pro­spe­rity, our secu­rity and our values of free­dom and demo­cracy. For the nation state is no lon­ger the place where free­dom resi­des, in the modern world. We need this fede­ra­tion of our nati­ons, no lon­ger a coali­tion of governments.

Peo­p­les of europe, find courage!

Be con­fi­dent in your bro­thers and sis­ters across all those proud nati­ons of europe!

see what unites us, and over­throw wha­te­ver keeps us apart!

Let love grow amongst you into cou­rage and strength!

Unity is our future

Unity is our future. We live under the same sky and share a com­mon history and cul­ture. We are one in the words of our poets, our respect for faith and beliefs, our values of jus­tice and freedom.

Only invidious natio­nal divi­si­ons stand bet­ween us and our future. But we want to live in peace and pro­spe­rity and we shall fight for these ends, pro­pel­led by the will of destiny. We must not allow the relics of the past to spoil our future!

Unité, citi­zens of Europe, unité!
in this moment of history, we, the citi­zens of Europe, will now and fore­ver create our Fede­ra­tion of Euro­pean nations.

This fede­ra­tion will uphold our human rights and fun­da­men­tal free­doms. It will reflect our civi­li­sa­tion and gua­ran­tee our way of life. It will lay down the foun­da­ti­ons for our eco­no­mic pro­spe­rity, accord­ing to princi­ples of jus­tice and soli­da­rity. It will pro­tect and amplify the wealth of our nati­ons now so greatly end­an­ge­red. And it will have one army and one for­eign policy, to pro­tect our peace and to embody the euro­pean idea before the rest of the world.

We can end the pre­sent cri­sis by foun­ding our Fede­ra­tion of Euro­pean nati­ons, because it will be the credi­ble sov­er­eign of our cur­rency the euro. Repla­cing the out­da­ted con­stel­la­tion of 17, soon 18, natio­nal sov­er­eigns, this joint and com­mon sov­er­eign will return to us the sta­bi­lity and pro­spe­rity that we now stand to lose.

This cri­sis is hence the choice bet­ween chao­tic frag­men­ta­tion on the one hand and united strength on the other. The strength of our fede­ra­tion will pro­tect our mar­kets and eco­no­mic endea­vours, so that we can return to our pro­fes­si­ons and earn the merits of our travails.

Let us create a European federation!

Be not mis­led by the sirens of our natio­nal past. This struggle is not about aus­terity or growth. This struggle is about the future of Europe. We stand at the brink of ruin. inde­cision and pet­ti­ness threa­ten ever­ything that we have achie­ved. Let us now unite and stand up against deca­dence and decay. We are not impo­tent. We, the citi­zens of Europe, shall act.

We shall take to the streets and declare our will to estab­lish this fede­ra­tion in a con­sti­tu­tio­nal act, based on rea­so­ned dis­cus­sion. We demand our governments to lay out a plan for us to con­gre­gate and to agree on a con­sti­tu­tion that will deter­mine the powers of this Fede­ra­tion, of its sta­tes, its regi­ons and its cities. This con­sti­tu­tion shall be appro­ved by popu­lar refe­ren­dum in all our nations.

The Euro­pean Fede­ra­tion thus crea­ted will advance our joint aspi­ra­ti­ons and com­mon inte­rests, and below its power­ful arch the magni­ficent diver­sity of our peo­p­les and cul­tures will flourish.

The­re­fore, rise up, citi­zens of Europe, and declare your will and determination!

The hour of history has come. to allow our nati­ons to flou­rish we must over­throw those dying struc­tures of the past. We must not tole­rate the dithe­ring of our poli­ti­ci­ans: They must hear our voice! And we shall act now, before it is too late.

This, citi­zens of Europe, is your hour. Do no lon­ger rely on the powers of the past but grasp the future in your hands. Rise up and take to the streets!

My phone rang. I woke up. The S‑Bahn was dri­ving into Pots­da­mer Platz, I had to get off. There was no grey man, no young boy with a crown and no beau­ti­ful girl in the seats around me.

I must have been dreaming.


The fina­lité of Euro­pean inte­gra­tion is a field for visio­na­ries, and the­re­fore not­hing that would play a pro­mi­nent role in the day-to-day preoc­cup­a­ti­ons of cri­sis-mana­ging prac­ti­tio­ners. While ack­now­led­ging the cri­sis as an unmistaka­ble sym­ptom of the fact that the eurozone’s insti­tu­tio­nal sta­tus quo was no lon­ger ten­able, we tend to be more con­cer­ned about gui­ding its insta­bi­lity into a new steady-state rather than worry­ing about the dimen­si­ons of the lat­ter amidst the broa­der poli­ti­cal, legal or even his­to­ric pic­ture. Ins­tead, we find our­sel­ves in the mode of ‘muddling through’, pri­ma­rily pre­ven­ting, whenever necessary, deve­lo­p­ments from spi­ral­ling out of control.

Being com­for­ta­ble with such incre­men­tal and prag­ma­tic, by defi­ni­tion messy, pro­blem-sol­ving ‘step-by-step’ is cer­tainly one thing that Ger­mans should learn from Bri­tons. This is not the time to apply a pre-coo­ked plan to the solu­tion of tho­roughly stu­died pro­blems. It is the time to address the next urgent ques­tion whenever it comes up and with the means avail­able, reinven­ting your tool­box of app­li­ca­ble instru­ments as you go along. Only with the bene­fit of hind­sight and at those rare moments of calm can one look back and clearly see that each brick laid down in great haste and without an over­ar­ching plan has actually found its place and destiny wit­hin a new edi­fice that slowly is star­ting to take shape.

My grea­test worry at this junc­ture is not the lack of cla­rity as regards the design of some future euro­pean Fede­ra­tion. the grea­test cur­rent pro­blem – bes­i­des all the prac­ti­cal demands of mana­ging a sov­er­eign debt cri­sis among dif­fe­rent sov­er­eigns sharing the same cur­rency – is the par­al­lel, pre­va­lent and indeed much more dan­ge­rous and fun­da­men­tal cri­sis of demo­cra­tic legi­ti­macy in Europe. The une­a­si­ness of Bri­tish libe­ra­lism and natio­na­lism with the incre­a­sing powers of ‘Brussels’ and the rise of non-con­for­mist and inher­ently non-coope­ra­tive poli­ti­cal move­ments across Europe are but two of many sym­ptoms of the fact that what indeed is most in need these days is the popu­lar, demo­cra­tic asser­tion of the public space. This public space is distancing its­elf ever far­t­her from the cogni­tive grasp of the lay­man, and its com­plex trans­gres­sion is evol­ving at the mind-num­bing speed of a natu­ral phe­no­me­non bey­ond human control.

Our efforts at over­co­m­ing the debt conund­rum have worsened this cri­sis of legi­ti­macy. Prop­ping up the pro­blem-sol­ving capa­city of euro­pean insti­tu­ti­ons has out­di­stanced the requi­red incre­ase of demo­cra­tic con­trol and accoun­ta­bi­lity. the fail­ure and decay of sov­er­eign nation sta­tes (expres­sed in their short­fall of credit and drea­ded “aus­terity” as its ine­vi­ta­ble con­se­quence) has only con­tri­bu­ted to the ero­sion of demo­cra­tic gover­nance, while a new, federal seat of demo­cracy at the euro­pean level has remai­ned as elu­sive as ever. The insti­tu­tio­nal gene­sis of true, euro­pean demo­cracy has hence not kept pace with the gro­wing tech­ni­cal body that is try­ing to come to terms with the mone­tary, fis­cal and finan­cial sins of the past.

It may be asking too much from the prot­ago­nists of sov­er­eign nation sta­tes to enact their own demise, and I rea­lise there is cur­r­ently no ‘poli­ti­cal entre­pre­neur’ around to kiss awake the slee­ping beauty of europe’s demos. est­ran­ge­ment and dis­con­tent with the poli­ti­cal estab­lish­ment may be the

only uni­fy­ing grass­roots theme at this moment, lin­king people tog­e­ther across for­mer bor­ders through the internet.

Maybe at this point there is only one thing that the prac­ti­tio­ners of con­ti­nen­tal cri­sis-manage­ment, the drea­mers of euro­pean federa­lism, the detached adher­ents to Bri­tish sov­er­eig­nty who still wish the euro­zone well and the est­ran­ged crowds in the streets of rome, nico­sia and dub­lin can agree upon. But this one thing is far from being the worst point of depar­ture: Change.

For example: treaty change.

2 thoughts

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