Seeking Alpha
Research analyst, dividend investing, ETF investing, long/short equity
Profile| Send Message|
( followers)

Jean-Claude Juncker on 1913 vs. 2013

There is an interesting interview in "Der Spiegel" with Luxembourg's prime minister and ex-euro-group chief J.C. Juncker. What is so remarkable about it is that Juncker seems to have realized that the one of the intentions that motivated the introduction of the euro has completely backfired, as usually happens with statist programs involving social and economic engineering.

The decisive points mentioned by Juncker are the following:

Juncker: For my generation, the monetary union has always been about forging peace. Today, I notice with a certain sense of regret that far too many Europeans are returning to a regional and national mindset.

SPIEGEL: What do you mean by that?

Juncker: The way some German politicians have lashed out at Greece when the country fell into the crisis has left deep wounds there. I was just as shocked by the banners of protesters in Athens that showed the German chancellor in a Nazi uniform. Sentiments suddenly surfaced that we thought had been finally relegated to the past. The Italian election was also excessively anti-German and thus un-European.”

SPIEGEL: You're exaggerating. No one today seriously doubts peace and friendship in Europe.

Juncker: That's true. But anyone who believes that the eternal issue of war and peace in Europe has been permanently laid to rest could be making a monumental error. The demons haven't been banished; they are merely sleeping, as the wars in Bosnia and Kosovo have shown us. I am chilled by the realization of how similar circumstances in Europe in 2013 are to those of 100 years ago.

SPIEGEL: 1913 was the year before the outbreak of World War I. Do you seriously believe that there will be armed conflict in Europe?

Juncker: No, but I see obvious parallels with regard to people's complacency. In 1913, many people believed that they would never again be a war in Europe. The great powers of the Continent were economically so strongly intermeshed that there was the widespread opinion that they could simply no longer afford to engage in military conflicts. Primarily in Western and Northern Europe, there was a complete sense of complacency based on the assumption that peace had been secured forever.”

(emphasis added)

This reminded us of a lengthy post we once published on Europe in the run-up to World War 1. It appeared to us at the time an interesting topic for precisely the same reason Juncker mentions above: the pre-war period was one of growing prosperity, trade and economic interdependence and it was generally believed that there could not possibly ever be war again. In other words, the "complacency" Juncker bemoans above was well-entrenched. This is a striking similarity to today; of course it is true that even in the worst case, no war seems imminent, but the idea that European nations are united forever in friendship may be put to a severe test if the economic downturn continues or intensifies.

Demons Merely Asleep

Opponents of the euro argue precisely that the bonds that have developed in Europe after the horrors of WW2 are in danger not in spite, but because of the euro. However, we think a more nuanced view is probably appropriate. It is not the use of a common medium of exchange as such that is the problem; the problem has been created by a huge expansion of credit and money, so reform should mainly aim to make the creation of money from thin air impossible. After all, the world worked excellently under the common medium of exchange of the gold standard (the distorted version of history propagated by modern supporters of statism with regard to the use of gold as money can be duly disregarded).

Radical political movements enjoy a resurgence everywhere in Europe, one that extends beyond the countries that are members of the euro area, as the euro area's neighborhood has been just as exposed to the fall-out of the crisis. Everybody knows about the rise of the Marxist Syriza and the fascist Golden Dawn in Greece, and the strong support radical parties of both the left and right as well as other protest movements have received elsewhere in the euro area, but astonishing developments are in train in the farther reaches of the EU as well.

According to recent polls in the Czech Republic, the communist party is now the second largest party in the country, a mere 23 years after having been deposed in a peaceful revolution. Hungary's government has just amended the country's constitution to the effect of curbing the powers of the judiciary, including those of the constitutional court. Hungarian legal scholars call it a "systematic abolishment of the constitutional order". Since the new laws also include certain limits on free speech, specifically speech that “damages the dignity of the Hungarian nation”, said legal scholars must now actually be careful of what they say.

One might say, so what, this is just Hungary, a small inconsequential nation; even the Czech Republic is not a large nation, so the rise of the communists there should not worry anyone. Perhaps. However, it proves something Juncker says above, namely that 'Europe's demons' have not been entirely laid to rest. They have merely been asleep.

Here is another excerpt from the Juncker interview that is worth commenting on:

SPIEGEL: The young generation tends to tune out when Brussels politicians lecture them again about the trenches of Verdun.

Juncker: Indeed, we can't completely rely on the aberrations of history to explain today's European necessities. Future-related issues are no less pressing. By the middle of this century, Europe will comprise only a good 7 percent of the world's population. Already today, over 80 percent of economic growth comes from other regions of the globe. A united Europe is our Continent's only chance to avoid falling off the world's radar. The heads of government of Germany, France and the United Kingdom also know that their voice is only heard internationally

(emphasis added)

To this we would note that the political project that the euro represents was inter alia also implemented for an analogous reason: one wanted to create a "'powerful currency" that could compete with the U.S. dollar in terms of international relevance. The error of Juncker, and indeed the error of the entire eurocratic elite is to believe that anyone beside themselves cares about whether or not Europe is on the world's 'radar'. It may be important to those exercising political power whether wielders of political power elsewhere in the world take notice of them.

For the average citizen there is a completely different list of priorities. The extent to which he is worried about said "radar" is probably limited by the question of whether or not peaceful trade with the rest of the world is possible. The average citizen is neither on a mission to make the world "better" nor is he interested in "saving the planet" from all sorts of hobgoblins the elites continually think up to scare him with. It is actually precisely when one gets on others "radar" that trouble tends to erupt.

Conclusion:

Secular economic downturns following large credit booms are dangerous animals; they have preceded every major war. These days war may well end up being waged by other means than open armed conflict, but we agree with Juncker that there is no reason to be complacent about such things. The veneer of civilization and peace is probably thinner than most people think. In the near term the greatest concern must be the rise of radical parties that would have no compunction to use the apparatus of the State to introduce authoritarian systems if they ever got into a position of power. What just happened in Hungary could happen anywhere. If one can no longer freely hurl insults "damaging to the dignity of the nation", one is in fact no longer truly free.


(click to enlarge)

Ex euro-group chief J.C. Juncker: worried about Europe's sleeping demons.

(Photo credit: AP Photo/Virginia Mayo)

Source: Europe's Demons