Europe’s Crises

Like a traveler walking on foot – always falling forward, cushioned by one moving foot at a time – Europe moves from crisis to crisis. But what is a crisis? Whether it is  psychosomatic,  cultural or social, a crisis places the organism at a crossroads; it is the “critical” point , where the criterion that dominates at the moment determines the path followed. The European crisis is centered at the unstable place where the subcontinent’s leaders hesitate between two paths, the path of stability (which is not immobility, but a tendency toward equilibrium), or the path of deepening imbalance, which can lead to disintegration.

The cultural basis of European crises

In 1935, Paul Hasard analyzed the European crisis caused by the rationalism of the 17th century. We only remember the famous diagnosis: “the majority of French people thought like Bossuet; all of a sudden, the French think like Voltaire: it’s a revolution.”[1] It was the triumph of a reason centered on the individual as master of his or her knowledge (as opposed to the believing community, reputed to be alienating), and for which Descartes was the preferred thinker. In May of 1935, a famous lecture given in Vienna by the philosopher Edmund Husserl was entitled The Crisis of European Humanity, a crisis read as that of modernity from which the social scientists and contemporary philosophers have tried to distance themselves. Little by little, in the manner of Max Horkheimer and Theodor W. Adorno, the impossible completion of this instrumental rationalism, born of the Enlightenment, was acknowledged: “The myth itself is already Reason, and Reason turns into mythology.”[2]

Today, Europe’s idea of crisis is based on this cultural foundation. Unable to be coherently mastered by reason, the crisis is polarized in its divergent manifestations: successive economic, political, ecological and financial crises, as well as a crisis of European governance, all of which are lived in the worrying shadow of unemployment, rising prices, insecurity and doubt concerning the future of Europe. Only a few moralists and some theologians link today’s European crises to a fragmented consciousness and a dispersed humanity. So, Pope Francis speaks of complexity, the interaction of several irreducible patterns of thought , as “the unique and complex socio-environmental crisis.”[3]

The remedies of  Europe’s cultural crisis diverge as much as the proposed analyses.

If there were no hesitation on the part of experts, politicians or economists, we would not be talking about Europe’s crises, but simply about the solutions that reason dictates. The issues  that lead to so many disparate analyses are highly divergent. It’s the suggested therapeutics which lead to analyses because, in the name of instrumental rationality, the tools we think we possess unconsciously format the diagnoses. It is the hammer syndrome: when the only  tool you have is a hammer, the problems seem to be nails to be hammered in! “In cultural modernity, reason is definitively stripped of its character as a requirement for validity and equated with pure power.” An assertion of Habermas which he fortunately qualifies.

Crises overcome

Is Europe really in crisis? If health, according to Georges Canguilhem, is the capacity of the organism to transform itself in order to “react to the infidelities of the environment,” it can be said that Europe has been in good health up to now.[4] For there have been many ‘infidelities of the environment,’ i.e. blows from outside over the last half-century, from which Europe has been able to recover. On 15 August 1971, a unilateral decision by the USA to suspend the application of the Bretton Wood agreements, which had been stabilizing the international exchange rate system since 1944; a few years later, a fivefold increase in the price of oil; then the break-up of the Soviet bloc at the end of the 1980s; then the Asian Financial Crisis during the following decade; the subprime financial crisis that came from the United States at the end of the 2000s; successive attacks by the coronavirus; and finally, the war waged by Russia in the Ukraine, are major examples of such “blows’.

To give just one example of this European resilience, the 2008 financial crisis was an opportunity for the Union to correct two of the biggest structural weaknesses of Europe’s financial condition: the lack of a banking union and the absence of specific tools to fight speculation. Other decisions triggered by the subprime crisis, making the system too complicated, were not implemented; for example, the adjustment of the deficit and debt rules for European countries.

Canguilhem claimed that illness leads above all to an effort to obtain a new equilibrium, and that “the organism makes an illness in order to cure itself.”[5] If this is true, then one can say that Europe is truly healthy because it has triumphed over crises by reorganizing itself. To plagiarize Machiavelli: any attack that does not kill Europe makes it stronger. This was proven by the Greek debt crises, the bailout of European banks in 2010, more recently the acceptance of the mechanism for resilience and rapid reaction to natural disasters and, last but not least, cohesion in the face of Brexit.

For the foreseeable future, three crises are emerging: the most immediate is monetary inflation, the most difficult to overcome is European defense, and the most dangerous is the rise of nationalism.

The causes of monetary inflation

The international division of labor and the  connection between countries, driven by the search for productivity and profit, are part of the universal rationale of capital which – for institutional as well as cultural reasons – affects Europe more than the USA or other nations. Moreover, finance has put its weight behind the installation of a practice from America (via the accounting system that is in place across the Atlantic) that makes immediate profitability measured by market value the criterion for good management of companies, households and states. But some countries, better than Europe – I am thinking of the behemoths China and India – have managed to escape this financial  domination.

The European economy, already weakened by the economic  struggle between China and the United States, faces an additional danger of its own. In addition to the economic effects of the confinement and the economic constraints of supply, there are the ongoing consequences of the Russian war in Ukraine, for which it is paying a large part of the costs, which is leading to restrictions on activity and to anxiety among both consumers and employees. Already, a few years ago, the first Chinese containment measures in 2020 had made the shock of a collapsing world demand felt; now it is the productive capacities that are affected.

As a result, the most immediate problem is certainly the inflation caused by the recovery of global activity after the pandemic and amplified by the Russian war on Ukraine. Two years ago, analysts ignored inflation. The problem was deflation, i.e. stable or even falling prices that risked reducing economic growth and employment because of the  weakness of demand. So-called “Keynesian stimulus packages,” based on public spending, were promoted. To finance this spending, the ECB followed the American example by creating money in exchange for claims on the states. To this was added the 750 billion in European loans intended to finance the fight against the deleterious effects of the pandemic. The reasons for not fearing inflation seemed convincing: a stabilizing effect on consumer prices, caused by competition from products and services from China and other developing countries, plus the aging  of the European population, which favors an increase in savings (and therefore a moderation in demand). In the same vein, the purchasing power created ex nihilo by the ECB was also being diverted into real estate and securities.

Unfortunately, these anti-inflationary factors were limited. The rise in prices, accentuated by the surge caused by the Russian war in the Ukraine, is increasingly reflected in wage increases that are dragging all prices into an upward spiral

Imbalances caused by inflation

There are great differences between the countries of the Union in terms of the rise in consumer prices. The reason for this is not only the energy mix of each country, but also the policy followed. For example, Lithuania’s increase is 22 percent, Belgium’s 13 percent. Italy’s average inflation in 2022 was 8.1 percent, the highest since 1985. Germany protects its industries more than its consumers, hence an inflation rate of more than 12 percent over the year 2022 for consumers. France has implemented a “tariff shield” that has limited domestic inflation to 6 percent. What we have not seen since the mid-1980s, double-digit inflation (over 10 percent per year) is on the doorstep of Europe. According to ECB estimates (end of December 2022), prices are expected to rise by more than 6.3 percent in 2023. This is slightly less than in the USA, which is no great consolation.

As against economists who see this inflation as good news, I see it as an economic and political social danger. On the one hand, inflation is good for the state budget, for companies or indebted households (at least for debts that are not indexed to inflation). For the state, because the resources linked to VAT increase mechanically with the rise in prices, and also because the debt, and therefore its repayment, decreases in real terms. On the other hand, inflation stimulates – at least initially – consumption, so as not to have to pay more tomorrow for the product that can be acquired today at a lower price (at least as long as the fear of the rising cost of living, not to mention taxes, does not lead consumers to save more).

On the other hand, on a strictly financial level, the European situation is deteriorating. Because of European inflation, the euro is falling on  foreign exchange markets (more than 10 percent fall against the dollar during 2022, but a recovery in early 2023), which increases the price of imports – including oil – and increases the debt service for dollar-denominated debts. To slow this decline, the ECB is thinking of raising the interest rate, but this desire is constrained because of the already excessive indebtedness of southern European countries.

While not all debt is maturing today – the average maturity is just over eight years – the periodic borrowing that will pay off these debts will be at increasingly higher interest rates. Five-year BBB-rated European corporate bonds yield about 4.5 percent today, compared with 0.25 percent at the beginning of 2022. In 2023, France or Germany will borrow on the markets between 300 and 500 billion euros. Any increase of one hundred basis points – for example from 2 percent to 3 percent – will therefore cost between 3 and 5 billion.

“Money wounds are not fatal” answer the optimists, especially if we can count on ex nihilo money creation by the ECB; especially since, excluding food and energy, the so-called core inflation seems stable despite the war in Ukraine. Moreover, a growing number of figures seem to indicate that inflation may be leveling out. Recent price declines in a number of ‘hard’ commodities (wood and metals) and ‘soft’ commodities (agricultural products) also suggest that the worst is behind us. At the same time – and this is the trade-off – this possible leveling off of inflation could simply indicate a slowdown in economic activity.

The social effects of inflation

The divergent effects of anti-inflationary policies in different EU member states are causing distortions in competition between the countries of northern and southern Europe. The future of inflation is all the more uncertain given that the war in Ukraine is casting a long shadow over the world economy.

Whatever the economic and geostrategic future of Europe, inflation has other disadvantages: the rise in interest rates will hamper investment and consumption on credit; the distortion of the general price structure will lead to wasted investment because it is calculated on false premises. But the main danger concerns social justice. These social effects of monetary inflation must be communicated to the technocrats who only look at their tables of figures.

Inflation would have few damaging social effects if all incomes were indexed. This is far from being the case. Pensioners have been noticing this for some time, and the modest revaluation of basic pensions in the summer of 2022 will not fill the gaps that have appeared  over the past several years in both primary and complementary pensions. For pensioners who were counting on pension funds to provide them with a decent retirement, the ECB’s monetary policy of lowering interest rates is not good news. This is what Keynes cynically called “the asphyxiation of rentiers.” Generally speaking, all those who are neither wage earners nor civil servants will find it more difficult to protect themselves from inflation.

In addition, there is a less well perceived phenomenon, stemming from the structure of consumption according to income level. Inflation is highest in the food and energy sectors, which together account for an average of 30 percent of European household budgets, compared with 20 percent in Switzerland. These are only averages that hide strong disparities. This higher inflation therefore affects more people and households in a precarious situation with modest incomes. This explains why inflation, which in Europe oscillated around 6 percent for the year 2022, reached more than 10 percent for the most vulnerable households. The additional costs (excluding social aid, which is often difficult to access for bureaucratic and cultural reasons) linked to housing, cars or household appliances are estimated at 1,500 euros per year in Europe for poor households.

The complexity of the situation stems from the fact that the advantages for debtors (the state, indebted companies, indebted households) and the disadvantages for creditors, especially for the poorest among savers, are not the same for the various social categories. To overcome the social crisis caused by this complexity, the European Union will have to make a clear choice.

This arbitration is all the more difficult than the aphorism: “The more you become indebted,  the more you plant future generations!”[6] implies. In fact, this is not entirely true. The inflation generated by this policy cuts into the wealth of current (not future) savers. Here again, the monetary phenomenon operates a concealed compulsory levy (i.e. not controlled by the parliaments, whose primary role it is). Hidden here is a discreet evasion of democratic practices.

Concerning European defense

After the last World War, in 1951 the Treaty of Paris created the European Coal and Steel Community (ECSC), which came into force on July 23, 1952, and concluded on July 23, 2002. At that time, a spirit of peace prevailed, far removed from the hostility manifested in the previous treaties.[7] This spirit of peace animated the first founders, the Italian Alcide De Gasperi, the German Konrad Adenauer, the Frenchman Jean Monnet, the Belgian Paul-Henri Spaak, the Dutchman Johan Willem Beyen, all Christians, coordinated by Robert Schuman who, in his famous speech of May 9, 1950, had laid down the compulsory   obligation of cooperation between the European countries, including the Federal Republic of Germany and Italy, which had been excluded from the previous treaties.

This ECSC treaty was a premonition of the horizon toward which Europe was moving, not without hesitation or backtracking. Indeed, the ECSC was organized around a “High Authority” that could intervene sovereignly in each member country, but only in matters  that directly affected the production indispensable for the arms industry. Supranationality was thus already present, albeit oriented toward the economic conditions of war. With the war in Ukraine, today’s conditions are reversed.

This post-war logic was forgotten when in 1987 the Single European Act was signed, which broke the unanimity rule for certain decisions. Admissible when the number of members was small (six), the unanimity rule became prohibitive when the number of members increased. Certainly, some European decisions still require unanimity – the most important of which concerns taxation. On the other hand, in an increasing number of areas – further enlarged in 1992 by the Maastricht Treaty in the wake of the Single European Act – a qualified majority is sufficient. But “qualified majority” means a problem of justice in the representation of countries whose demographic and economic weight varies greatly. How can we ensure that Luxembourg, Croatia or Belgium are heard in the same way as Germany, Italy or France? This is the reason why, in the history of Europe, the Single European Act of 1987 marks the shift of Europe from a post-war approach to issues of justice between member countries.

The Russian attack of February 2022 against a European country has brought back the old, forgotten military background in reaction to which the European Union was born. But this attack reverses the purpose. It is less a question of curbing the capacity of each of the member countries in terms of its own armaments sectors than of promoting military collaboration in Europe in the face of a common enemy. While waiting for an autonomous military defense policy of the Union to be put in place, the American arms industry is taking advantage of the absence of European coordination to sell its equipment. Germany, which is widening its industrial gap with France and the other countries of the Union – its refusal to cap the price of gas bears witness to this – suspects France of wanting to favor its arms industry under the guise of European cooperation. The other members of the Union are increasingly resentful of France’s “privilege” of holding a permanent seat on the UN Security Council; they are increasingly open in their desire for it to be transferred to the Union. On the other hand, France does not want to give up its nuclear weaponry without compensation.

In March 2022, a few days after the beginning of the Russian attack on Ukraine, under the French presidency, the European Union (EU) adopted a “strategic compass for security and defense.”[8] This small booklet of forty-seven pages gives an overview of possible military conflicts in the world. The United States is presented as “a world power that contributes to peace, security, stability and democracy on our continent” and remains “the EU’s most loyal and important strategic partner.” Some specialists qualify the term “faithful partner while noting that it remains the “most important” partner. They invoke the American mistakes in Vietnam, Somalia, Afghanistan, Iraq, Libya and  Syria, their low blow against France in the affair of the submarines ordered by  Australia; the flagrant distortions of competition, last December 2022, against Europe by the massive subsidies to the local producers of automobiles. Other specialists go so far as to wager that the USA will defend Taiwan against continental China, until they have established a comprehensive semiconductor industry on American soil, a suspicion shared by some Taiwanese leaders.

Whatever the future world geopolitics, in his column in the magazine Études (Paris), published in June 2022, Thomas Gomart, director of the IFRI (French Institute of International Relations) underlines “the gap, to say the least, problematic between the declared resolution to ‘defend the European security order’ and the capacities needed to act.”[9]

The sinews of war, finance

Even if Europe becomes stronger by triumphing over attacks from outside, will it be able to overcome the inevitable financial disagreements? There is a need to deal with what has happened to financial solidarity in Europe, with the isolation of the European Central Bank (ECB) as it struggles to manage the energy crisis, the sanctions against Russia, the blocking of PNRR (National Recovery and Resilience Plan[10]), funds to Hungary and Poland, the fight against inflation by raising rates. Norway, the largest energy producer, is cynical and does not support the rest of the community. Germany and Holland do not want to endorse the creation of an aid program similar to the one attempted with Covid to help countries plagued by rising energy costs. The central point is the association of European politics with finance, which are the two faces of the crises coming from within Europe. This is a difficult problem, well summarized by the aphorism attributed to Joseph-Dominique Louis (known as ‘Baron Louis’): “Sire, create for good politics, and I will give you good finance.”[11] But the difficulty is redoubled because finance can also circumvent political will.

The European prototype of this bypassing of political will by finance was most certainly the war led by Bismarck against Austria. To complete the unity of the German states around Prussia, the chancellor decided to declare war on the Habsburgs who ruled in Vienna over what remained of the Holy Roman Empire. He asked the Prussian Parliament for the necessary military credits, which were refused. Bismarck then turned to the banker Bleichröder who formed a syndicate of banks around him capable of financing the Prussian war. The result was a victory for the Prussian armies under the leadership of General Helmuth von Moltke on July 3, 1866, at Königratz (known in some quarters as the victory of Sadowa). This is how finances can subvert political will.

However, not every budgetary impasse necessarily involves an undemocratic circumvention of political power. A budgetary deadlock occurs when the parliament decides not to cover the totality of budgeted expenditures with taxes, because it relies on borrowing. As in a game of cards, the deadlock is a gamble, in this case a gamble on the confidence of civil society (companies and households) whose leaders will take out the necessary loans, or not.

Conversely, the appeal to the central bank to finance the impasse – indirectly, because European regulations directly forbid it – testifies to a bypassing of the financial sphere by the political power. This connivance between the political power of Europe and the ECB is a way of  bypassing both civil society and parliamentary control.

The rise of nationalism

However useful the external enemy may be for reuniting European nations, will it be enough to offset the centrifugal forces that threaten Europe? Nationalism in Europe is taking as a pretext, in addition to migrants from the Southern and Eastern Mediterranean, certain decisions of the European Court of Justice prohibiting, in the name of human rights, the expulsion of foreigners who have committed crimes on national territory.

The invasion of Ukraine was an opportunity to implement the Directive of March 4, 2022, on the “temporary protection” (one year renewable twice) of migrants formerly established in Ukraine. From now on, notwithstanding the three Dublin agreements (counterparts of the Schengen area of 1985) which obliges the country of entry to process the file, Ukrainian residents can settle in the European country of their choice; they automatically benefit from a residence permit, the right to work there and social coverage, including education. This has allowed Poland – and to a lesser extent Hungary – by threatening to “release” the mass of refugees they have taken into the West – to put pressure (successfully) on the European Union in the dispute between them.

The blocking of PNRR funds to Hungary and Poland is the European answer to the ways of proceeding contrary to European values. The European Commission has been asking since 2019 for the dismantling of the disciplinary section set up by the Polish government at the supreme court level with the task of judging causes regarding status and the exercise of functions that pertain to the judges of the same court. The European Court of Justice held that institution to be contrary to the rule of law, which is based on the independence of judicial authority. This constitutional court, in a famous decision of Thursday, October 7, 2021, states that, by requiring  Poland to change its judicial institutions, “the bodies of the European Union are operating outside the competences entrusted to them in the treaties.”

Actually, the dispute was more complex than it appears, and raises the difficult question of balancing the needs that derive from the principle of state sovereignty and the principle of subsidiarity in the Union. Regardless of the journalistic and legal interpretations made, the European Commission has suspended the payment of the 23.9 billion euros in grants and 11.5 billion euros in loans expected by Poland. And, despite there being a law approved last May by Poland’s parliament that foresees substituting the disciplinary section with a new section for professional responsibility, which would conform to European law, the decision by Brussels to approve the PNRR for Poland remains tied to the reaching of 282 milestones and targets, for the payments to be released.

For Hungary, the reason for the suspension of the expected 7.2 billion euros is corruption. In order not to see European aid squandered, these reserves affecting the State was the condition, endorsed by the European Parliament, demanded by the Northern European countries (led by Holland) during the negotiations over the European recovery plan during the first attack of the corona virus in 2020.

Poland and Hungary have been reluctant to give their agreement on European issues where the rule of unanimity holds, notably taxation. Already, in December 2021, these countries have demonstrated their ability  to cause harm to the tax on the profits of transnational companies and on the carbon tax. Finally, Hungary lifted its veto in December 2022 (for 18 billion euros), which allowed the implementation of the “carbon tax” at the borders of Europe, as well as the 15 percent tax on the profits of multinational companies based in any of the countries of the Union.

The ECB alone cannot overcome Europe’s crises

For the past 30 years, financing public deficits by creating money has helped to cushion cyclical shocks from outside Europe. On the other hand, this policy of easy money has blinded European governments to the fact that structural reforms cannot be postponed indefinitely. It is true that one of the greatest Presidents of the European Commission,  Jacques Delors, used to make the claim that the euro will bring us peace, prosperity and competitiveness. We have to admit that monetary union is incapable, on its own, of boosting productivity.[12] All the more so since the level of indebtedness reached by the countries of southern Europe prevents the ECB from raising interest rates to the level required for them to play their economic role properly. For this to happen, real rates – that is, taking inflation into account – would have to be positive, but they are still largely negative. The ECB is therefore content to safeguard its credibility by raising rates slightly above zero. This will already lead to an increase in the financial burden of the countries concerned.

Like the law, which is made not for the butcher or the carpenter but for the citizen, the European currency is made not for the economic actors (households, companies and, increasingly, the States of the Union) but for the European economy. In practice, each member country uses it according to its particular situation, and benefits – or suffers – differently. By modifying the allocation of resources and risks, the ECB plays an increasingly obvious political role. This role will be strengthened if it is accepted – as some economists propose – that the ECB should directly finance companies in privileged sectors such as  ecological transition, digital research, companies in the hydrogen or fuel cell sector, or even training.

The current policy of the ECB, by shifting the financial risks to the countries of the South, can only blunt, not its power (which depends only on the European treaties and the lax way in which they are interpreted), but its authority, an authority it needs to maintain the necessary popular support that the euro has attracted and increased. Of course, shared risks are not the only condition for maintaining confidence in the functioning of the European financial system. The ECB still needs to propose precise monetary objectives and proportionate means, all of which are requirements that diminish its power. The fact remains that the authority – and not only the power – of the monetary institution is indispensable for the proper functioning of the European economy.

Conclusion

The European political authorities (Council, Commission, Parliament) and its judicial authorities (European Court of Justice) cannot escape the latent crisis of modernity, a distant avatar of sovereign reason (Paul Hazard) as much as of European humanity (Edmund Husserl). The latent crisis of modernity is the crucial choice between the “global” and the “local.” These politicians can no longer take refuge in the “participation of all” or behind “ethics” and its “Committees,” in order to avoid assuming their responsibilities. They must discern on a case-by-case basis, as Habermas suggests, for whom only rules capable of federating values that are the subject of practical discussion are valid.

These are difficult decisions because, in modernity, we cannot know the “global” by exploring the “local” alone. Conversely, the “local” is not entirely deduced from the “global.” Should we “think ‘local’ and act ‘global’” because “to act, we must localize”?[13] Or should we, on the contrary, as the Chiapas revolutionaries proposed, “think ‘global’ and act ‘local’”? In fact, it is necessary to hold to both these two contradictory postures; it is the cross of politics and the permanent source of the current crises of Europe as well as of any country in the process of change. To use the expression of Stephan Zweig in his lecture on Erasmus of Rotterdam, Europe will only be able to overcome its crises “by resisting the thundering sirens of the vain pretensions of kinglets, sectarians and national egoisms.”[14]

DOI: La Civiltà Cattolica, En. Ed. Vol. 7, no.3 art. 2, 0323: 10.32009/22072446.0323.2

[1]  Paul Hazard, 1935, La crise de la conscience européenne, 1680-1715, Paris, Boivin et Cie, 1935.

[2] M. Horkheimer and T. W. Adorno, Philosophische Fragmente, New York Institute of Social Research, 1947; Dialektik der Aufklärung, Amsterdam, Querido, 1947.

[3] Pope Francis, Laudato Si’ (2015), No. 139.

[4] G. Canguilhem, 1943, Essai sur quelques problèmes concernant le normal et le pathologique, Clermont-Ferrand, “La Montagne”, 1943.

[5] Ibid., 13.

[6] Statement in France by the first president of the Court of Auditors (presenting, in early July 2022, an alarmist report on the state of French public finances)

[7] The spirit of the Inter-Allied Conferences of Tehran   (December 1943), Yalta (February 1945), and the Potsdam Accords (July-August 1945) involved  a desire for revenge, which for some was akin to a desire for vengeance The Treaty of Dunkirk, signed on March 4, 1947, between the United Kingdom of Great Britain and Northern Ireland and France, was also based on open hostility to Germany.

[8] Council of the European Union, “A strategic compass”, March 21, 2022.

[9] T. Gomart, “L’Union européenne à la recherche d’une orientation stratégique”, in Études 166 (2022/6) 29f.

[10] PNRR, National Recovery and Resilience Plan, aims to combat the socioeconomic effects of the Covid 19 pandemic.

[11] Joseph-Dominique Louis, promoted to Baron d’Empire in 1809 by Napoleon. During the Restoration, under the reign of Louis XVIII, he was appointed Minister of Finance by Talleyrand, then Prime Minister.

[12] Cf. É. Perrot, “L’euro compie vent’anni”, in Civ. Catt. 2022 I 253-264.

[13] G. Canguilhem, Essai sur quelques problèmes concernant le normal et le pathologique, op. cit.

[14] S. Zweig, Triumph und Tragik des Erasmus von Rotterdam, Wien, Reichner, 1934.