11 November 2011

Thought for the day: “Those who cannot remember the past are condemned to repeat it.” – Poet and philosopher George Santayana (The Life of Reason, 1905)

Past? What past? Well, how about 1923 for a start? That’s when Germany started printing banknotes in denominations of up to 100 trillion marks (that’s 100 followed by 12 zeroes), and there were 4.2 trillion marks to the US dollar.

Perhaps that helps explain why Germany is so set against allowing the European Central Bank to buy up shed-loads of government debt from other eurozone countries – printing money (or the modern equivalent: tapping in a few more zeroes onto a central bank balance sheet), which is what it could entail, and which is what the Federal Reserve and the Bank of England have been doing, stirs up some very unpleasant memories.

In Germany, they remember the past.

Or how about 1948, when the US launched the $13 billion Marshall Plan to help rebuild a Europe shattered by war? Did Europe echo to the sound of its people’s undying gratitude for US generosity? Have Europeans thought well ever since of the US and remembered the help provided then? No, they have not.

Which may be one reason why the US, which is the main provider of cash to the International Monetary Fund, is so set against seeing it shovelling cash across the Atlantic to help Europe in its latest hour of need.

In the US, they remember the past.

Or what about 1946-49, when the people of Greece were engaged in a bitter civil war between pro-Western and pro-Communist fighters? Or 1967-74, when the country was ruled by a right-wing military junta, which had seized power in a coup? Perhaps those are two reasons why even today, it has been so difficult for left and right to come together in the face of the financial melt-down.

In Greece, too, they remember the past.

But here’s the point: if we remember the past too well, is there a risk that we allow our memories to cloud our judgement? After all, the world changes, especially economically – who in the 1920s, 30s or 40s could have imagined that one day we’d be fluttering our eyelashes at China in the hope of some lifebelt loans from Beijing and Shanghai?

Back in the days when the creation of a European union and a single market was an ideological project, the belief was that recurrent conflict in Europe would be replaced by mutual commercial interest. It started with coal and steel, France, Germany, Italy and the three Benelux countries – and now, 60 years later, it stretches all the way from Lisbon in the west to Sofia in the east and embraces half a billion people.

Was the creation of a single currency a step too far? Has the euro debt crisis exposed what the doubters always argued: that you can’t have a multitude of democratically elected governments all setting their own tax and spending policies while sharing the same currency?

Or perhaps the present crisis is simply a manifestation of global economic stresses that would have caused problems with or without a single currency. After all, it’s not so long since the US, with its single currency, was struggling through its own very messy debate about how to deal with an eye-watering amount of Federal government debt.

In both Greece and Italy, people are wondering if the markets have now taken over from the voters as the choosers of governments. Lucas Papademos, the new Greek prime minister, may be a splendid chap, but he certainly doesn’t owe his job to the voters. Nor will Mario Monti, the former EU Commissioner who’s now being tipped as Italy’s next prime minister.

On the other hand, if I run up humungous debts on my credit card, which I then can’t pay off, I can’t really complain if the bank starts laying down the law about how much I will have to pay back each month and by how much I’m going to have to cut back my spending on other things.

We’re back to poor old Polonius, in Hamlet: “Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” It’s better as poetry than as economic policy, perhaps, but too much borrowing rarely ends happily.

And as for all those people who are urging Germany to “assume its responsibilities” (ie use more of German taxpayers’ money to bail out the Greeks, Italians, Spanish, Portuguese and Irish), well, perhaps they should remember one more bit of history: the last time Germany effectively took over the running of Europe – using military rather than financial muscle – it ended very unhappily indeed.

Germans remember only too well, even if others don’t.