Philip Whiteley's Blog

November 30, 2010

What’s the story?

Filed under: Uncategorized — felipewh @ 2:40 pm

There is little doubt that the crisis in the European single currency is going to get worse before it gets worse. Debate among economists focuses on the eye-wateringly high volumes of debt that has been run up by European banks and Governments, and technical details on elaborate escape routes, all of which come with hideous side-effects.

Why is it, though, that the economists hold the floor, given that it was economics that got us into this mess? Economists have a fatal tendency to think that the economy consists of money, when of course it consists of people.

Consider the so-called ‘convergence criteria’ of the Maastricht Treaty: nothing more than an arbitrary, and short, list of stats on spending and borrowing. These aren’t policies; they’re just the by-product of policies. Money doesn’t shape economics, stories do. Let’s look at the stories behind some of the key participants in the Euro drama. In each case, the major traumas of the past century count for far more than technocratic matters of money management:

Ireland – The European Union gave an historic opportunity for a small country to break free from its domination by Britain.

Germany – The guilt of two major land wars compels it to dedicate itself to European Union, while the trauma of hyper-inflation bolsters belief in sound finances and a strong currency.

Spain – A nation that suffered one of the most brutal civil wars of modern times has healed wounds and modernised its economy with the help of the EU.

The experience of Ireland and Spain of the EU as a lead partner, almost saviour, contrasts with that of Germany for whom participation in the EU is a solemn duty. Of course, this is simplified, and there are other strands, but these have been influential. Yet none of these narratives are taken into account in economic decisions.

This matters. The euro is falling apart for the simple reason that it was never based on an optimal currency area. Blaming Germany for not encouraging more demand, or for Chancellor Angela Merkel’s insistence that reckless lenders should share in the pain, is to confuse the symptom for the disease. It’s also to ignore the historical and contemporary reality. Asking Germans to give up the principles of living within your means and low inflation is like asking Miss Jean Brodie to do a burlesque revue, and then some group sex. It won’t happen. Give it up.

What would have been even worse would be if the German people had never been asked if they wanted to join the single currency in the first place. Oh, wait a minute, they weren’t.

  • The importance of national histories and shared stories is discussed in The Global You, co-authored with Susan Bloch. See here for more information, and here for purchase.



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