The Decline of the West 2

harold-james2The collapse of the European Union would be followed by the dissolution of some European countries, such as Italy and Spain, and the separation of Central-European national minorities. This can realistically occur in the near future, says Harold James, who one of the most famous and most often cited professors at Princeton University.

The historian, whose book about the formation and the crisis of  European Monetary Union became a best-seller, points out in the interview that the authoritative decision makers are making a huge mistake when they make people believe that future problems are going to be solved by the big central banks, the leaders of the FED and the European Central Bank.

The history of the 1930s teaches us that it is irresponsible to rely on something like that, thus, the solution of the recently emerging and growing social and political problems across Europe should not be further postponed by the real leaders in charge. However, there is no doubt that the disenchantment of the European, non-national crisis management is increasing and the nationalist sentiments are strengthening in the West, as well. As a result, the principles of the European Union and the free flow of capital and labor will be reconsidered and the dissolution will start.

Zentai Péter: As a historian and researcher of the European financial efforts, successes, and failures, what do you think of the idea that capitalism as a whole is in a crisis, resulting in terrible things?

Harold James: Clearly, the market economy does not operate properly. Both in the West and in the East, many people are deeply worried about that and dissatisfaction is increasing.  But the current situation is not without precedent. It resembles in some ways the Great Depression in the 1930s when there was also an enormous backlash against capitalism. However, in the 1930s, there were very clear ideologies; people had alternatives to the market economy, to the capitalism, to the liberal political system. On the left, there was the communist system; on the right, there was fascism and National Socialism. Both of them presented themselves as export models.

Today, there is no clearly formulated alternative vision of an economic-social model that could be able to encourage millions of people. It does not mean that there is general dissatisfaction with the capitalism as a whole; people are worried about the way the market economy and the supporting financial sector are working. If we want to try to fix that, we should think in terms of cross-border regulations addressing taxes, banks, and social security systems.

This so-called Europeanization is increasingly unpopular among people because they fear that it would harm national sovereignty. By the way, I read one of your articles the other day about how much the “great internationality” had disappointed people in the past. Although the interaction between central banks had never been as strong as in the 1930s, things did not turn out well …

My point in the article was to point out that in the aftermath of the crisis, we except central banks to do too much and we are likely to be disappointed. Central banks do not have all the necessary power, ability, and preparedness to deal with all of the problems of the crisis on their own. In the past few years, both the FED and the European Central Bank made a number of decisions to keep markets open and prevent the collapse of political, economic, and mainly, financial systems. At the beginning of the 1930s, similar things happened and it turned out that, in the long-run, central banks are unable to maintain a whole social-economic system. In these days, people still have the illusion that central banks will rescue the countries. This is not a sustainable situation anymore.

In the 1930s, there were two alternatives were offered – at least in Europe: fascism or communism. Today, many of the decision makers – the Hungarian prime minister, for instance – believe in strengthening national sovereignty or in nationalism and in stopping globalization. What is your opinion about this?

I can see exactly why this sentiment comes about. Hungarians were very upset about the way banks had offered them foreign currency mortgages and loans at lower interest rates before the crisis, and as a result, many of them have gone broke by now. They were not aware of the dangers that this kind of credit can bring with them, if the currency value changes. That is an analogy to what happened in the United States with the mortgage market. So this kind of nationalist response seems to me to be logical in some ways but it is a very poor second-best solution if we think of the problem as a whole. If Hungary is cut off from the international capital markets, it will not be capable of growing and building a modern infrastructure and a modern economy. Instead, a better consumer protection is needed.

Nobody is talking about complete isolation or protectionism yet. They say that globalization is harmful but banks are mischievous. Thus, they want to constraint them.

Nevertheless, political actions and underlying ideologies are very dangerous: national sentiments can lead to the restriction of capital and labor movement. Both of these subjects are very intensively discussed because, in some ways, it has already been done in Cyprus. After the crisis, Cyprus introduced capital control limiting, and in effect, closed off its economy. There are also discussions about restricting flows of people in countries where there is a lot of immigration – in Great-Britain, for instance. UK campaigns about immigration control from Bulgaria and Romania are getting more and more intensive.

What we are talking about is that more and more European governments question the principles of the European Union. Is this going to lead to the collapse of the Union?

There is a real danger that the European Union will collapse; we were close to that a year ago. The responsive official Europe has really been disappointing, slow, and patchy. In the aftermath of the crisis, there was an awareness that something has to be done in order to make the monetary union work better. The reform program is very difficult and the progress will be slow. In the meantime, the disenchantment of the EU strengthened the nationalist parties and national sentiments. This is extremely dangerous because it seems to me it would not just stop with the break-up of the EU but with the break-up of individual states. First, North and South of Italy would move away from each other, and after that, Catalonia would separate from Spain. In Central and Eastern Europe, minorities might want to join other countries. The whole process of dissolution might produce violence and potential international conflict.

Technology still remains as a tool for us for maintaining peace. In my opinion, politics and political decisions can be overridden by the social networks on the Internet. People increasingly seem to be connected by the same range of interest, not by belonging to the same nation.

I think this is too optimistic. Let’s think of the Arab Spring, where we had huge expectations about war technology that would allow overthrowing dictatorships and creating a new form of democracy. After the initial euphoria, we saw that it does not necessarily foster the world in the direction of global openness and acceptance of the basic values. We had to realize that technology can be also used by nationalists, terrorists, and fundamentalists for very destructive purposes.

Is it possible that the majority of the Western world – including Central and Eastern Europe – got fed up with the liberal parliamentary democracies and the constant bribery and other scandals? That they want a stronger and more centralized leadership? If this is the real public opinion (the disenchantment of democracies), are those politicians right who want to establish an authoritarian or autocratic regime in order to avoid open dictatorship?

Clearly, the dysfunctional parliamentary systems caused disenchantment. For instance, in the United States, a small but very well organized minority, the Tea Party, was able to hijack the Republicans, incapable of producing a budget resolution. It seemed to be proved that there are huge possibilities of abuse of power in the parliamentary democracies. In Europe, in the last three years, parliaments found it difficult to make decisions. In Italy, Berlusconi made an attempt to govern the country in an autocratic way. After his failure to do so, many people recognized that Europeanizing issues can really bring them away from the local politicians and make politics, social and economic life more subject to rules and transparent regulations. This would actually allow for a much better and more satisfactory range of choices than living in an authoritarian or corrupt regime.

So the parliamentary democracy and the Western European economic-financial model can be saved and improved by a pan-European solution, if it is achieved in an efficient and reasonably way.