George Friedman on Europe's New Reality (Agenda)
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Video Transcript:
Colin Chapman: As the Greeks go to the polls this weekend to try to form a workable government, one international bank has been testing its cash machines to see if they'll dispense a new bank note, reflecting the possibility that Greece may have to abandon the euro. Some Greeks are withdrawing their cash as the Central Bank announced that $44 billion worth of euros had been pulled out last year. Meanwhile, Spain's center-right Prime Minister Mariano Rajoy, whose country this weekend was the recipient of a $100 billion euro loan package, has described the EU crisis as the gravest since its creation. He says Europe's leaders, meeting next week, must find a way to save the euro.
Welcome to Agenda with George Friedman. George, the eurozone debt crisis has now been with us for at least two years -- when and how will it end?
George Friedman: Well I don't think we are in a crisis any longer, we're in a new reality. And the reality is the deep incompatibility of national interests within Europe. On the one side, as I've said many times, you have the world's second-largest exporter, Germany. On the other side, you have a series of countries that are overwhelmed by those exports, looking for markets themselves and trying to stabilize. And I think we're now at the point where we're realizing that the interests of Greece, interests of Spain and interests of Germany are not quite aligned. They are aligned in the sense that Germany needs a free trade zone for its goods and it's also aligned that under certain circumstances, the other countries need a free trade zone. But these specific circumstances, along with the regulations of Brussels and the euro, are not advantageous.
So the real question is: Can Europe find a new balance that continues the structure of some sort of integration among these countries, or will it break apart into multiple countries or regional groupings among these countries -- in other words, into a more traditional form of Europe. I think the contradictions within Europe are so deep that the second outcome is the most likely. You're not going to have the complete disappearance of the EU perhaps, but you will have within the EU, nations going their own way, sometimes in opposition to each other, groupings within the EU developing and really, the nation state, as it has become there, will be more important than the European Union. In other words, Europe will return to its prior form. When we consider that Maastricht was signed only a little over 20 years ago and European history goes back several thousand years, I think we will look back on the EU as an experiment that was very interesting, very promising and doomed to fail, that Europe will continue its history as it did before.
Colin: There are of course risks with that, and one reason so many decision makers and others are trying to save the eurozone, or at least the EU, is they fear a return to the dark days of the 1930s.
George: Well they can fear the 1930s, 1810 or any other positions. The question is: Can Europe escape its own history? Can simply the desire to transcend this, turn into the reality? To build a nation, to build a true, integrated Europe requires that some nations pay substantial sacrifices. In the United States, after the Civil War, the South paid a large sacrifice in terms of economic development. Right now in Europe, you're asking some nations to accept extreme forms of austerity in order to preserve the EU, in order to preserve bailouts and in order to preserve their relationship with the other countries. At a certain point you can't pay these prices or at a certain point everybody agrees they won't have to pay the prices and the price falls on Germany and other countries. What is very apparent in the end, is that a Greek is a Greek, a German is a German and a Frenchman is a Frenchman. None of them in the end see Europe as being their primary identity. Some wish it would be the case, some perhaps do believe it to be the case. But on the whole, the Greek government does what is in the interest of the Greeks, the Germans do what is in the interests of Germany and so on.
So we really are back at the point where rather than speaking of a single Europe, it's necessary to travel to Berlin, to Athens, to Madrid and Paris to have discussions and they don't all -- not only don't speak with one voice -- they speak with contradictory voices.
Colin: I hesitate to call any move a last big effort, particularly as there may be many more, but at the summit next week we'll see France's President Francois Hollande arguing that the European Central Bank (ECB) must now take control of sorting out this mess. Apparently he wants the ECB to run the $500 million European Stability Fund, recapitalize the banks and directly supervise them. This could lead to a showdown with Germany.
George: The most interesting thing now is that the Germans and French have split, have disagreed on fundamental issues. Perhaps this particular rift can be covered over, perhaps not. But the most interesting thing about this meeting is not that they're having another meeting (that's what the Europeans have basically done for the past two years) but this is the first meeting where it is a showdown between the French and the Germans over pretty different ideas as to what should be done, as to whether the Germans can back down and accommodate the French, whether the French can accommodate the Germans, can they find a middle ground? Perhaps, but both sides are trapped by political forces within their own countries, so I think the most important thing about this meeting is, how you put it, there is going to be a showdown between France and Germany. That is the one thing Europe never wanted to hear, no matter how marginal or minor the matter.
The one most frightening thing in Europe is a divergence between Germany and France. Obviously I'm not speaking of war, obviously I'm not speaking of true hostility and I'm not speaking of a return to the 1920s and 30s. There have been many periods of European history when there has not been outright war, but there has been uneasy relations between nations with different interests. And I'm not predicting that's going to happen, I'm saying that has happened.
Now the question is: How bad does it get, how fast does it get bad? And what I'm simply saying at this point: It's no longer useful to think of the EU as a deciding entity, you have to go to Paris or Berlin to find out what their national interests are and what they negotiate. So if Maastricht was designed to be the permanent framework for European integration, we're not there any longer -- that framework no longer governs what the nations of Europe do, their own parliaments, their own publics do. And so we are at that point, not of disintegration but within the framework of the EU, of the inability to reach accommodations and increasing discord.
Colin: What I find interesting about Hollande, is he seems to have the support not just from the left, but also from the center-right in the shape of Spain's prime minister.
George: What's interesting is that coalitions are forming. Around the French position there is the Spanish and whoever and around the German position there are others. What's interesting is that you have a very normal political process under way, and this is what European history has been about for a long time. You don't have to speak about the starkness of the 1930s and the 1940s. As a model, you can simply say that nations have retaken the lead in defining what they're going to do, and nations are forming coalitions with other nations and the framework of the EU becomes less and less decisive in what happens.
Colin: George, we'll have to leave it there. George Friedman ending Agenda for this week and thanks to our subscribers for joining us. Bye for now.
