In the summer of 1914 the Austrian novelist Stefan Zweig was on holiday in Ostend with fellow writers and artists. One afternoon, noticing the sudden appearance of uniformed soldiers on the promenade, they buttonholed an officer: “Why all this stupid marching around?” It was 3 August: war was less than 24 hours away but it seemed impossible.
The European elite, because it believed the era of peace, social liberalism and globalised trade could never end, walked blindly into its ending. Today the political elites of Europe stand in danger once again of destroying a dream. They have convinced themselves the single currency and the European Union are the same project, and that the collapse of either would be the end of the world they know. Therefore it cannot end. This fallacy is now about to be tested.
And here are his final thoughts
In October 2008, and again in the spring of 2009, the US authorities were able to find a circuit breaker for the financial crisis, in the shape of the Tarp and quantitative easing. Europe, unwilling to impose losses on its banks, indeed prepared to rubber-stamp stress tests on banks that then went bust, has yet to find a circuit breaker.
As a result, the combined momentum of fiscal crisis and social unrest stands the chance of dragging the periphery further into crisis and, in the case of Greece, out of the euro altogether.
None of the options are palatable: a serious default by the periphery would hammer banks and pension funds in the north European core. A modern Marshall Plan for Ireland and South Europe would last years, cost hundreds of billions, and with the US itself in debt reduction mode, only China and a reformed IMF could conceivably fund it. Leaving the euro would not solve the basic problems of competitiveness and unfunded social benefits in the south. But these are the options: as real as the “Error Del Sistema” placards in Madrid’s Campo Real.
Looking back on the summer of 1914 Zweig wrote: “The worst of it was, the very thing we loved the most, our common optimism, betrayed us; for everyone thought everyone else would back down at the last minute and so the diplomats began their game of mutual bluff.”
Common optimism is a value worth preserving; but so are realism and decisive action.
As ever, read the whole thing.