Your money or your life! Is Europe heading toward an existential democratic crisis?

Back in March 2008 in one of my first blog posts after leaving the FCO I wrote about Trust as part of the Grand Unifying Theory of Politics:

The core question of politics and economics is Trust. More specifically, under what circumstances can and should one trust strangers?

The greater the ambient level of trust in any given social space, the easier it is to do things quickly and well. People who scarcely know each other or who have never even met can strike sophisticated deals, knowing (a) that other partners are likely to be reliable, and (b) that if things go wrong the local state institutions will honestly help sort out the problem.

Without Trust of this sort, personal and organizational horizons shrink. Extended family networks and associated corruption thrive as the best way of dealing with the trust problem.

Or one trusts primarily members of one's own group/clan/religion/community. And assumes that members of other groups/clans/religions/communities are doing the same, so they are not to be trusted too far since their primary loyalty (like one's own) is not to a fair, neutral process.

All this is massively obvious across the former Yugoslavia space. Political leaders must represent 'their' national communities first and foremost if they are to get elected; voters distrust other communities and make a mainly ethnic/national choice as a form of political fire insurance.

Even in the UK where there is no serious complaint about the intrinsic fairness of the legal system and Trust is at civilisationally high levels, many Scots want a different political structure, viz some sort of independence from England. Likewise Quebec, Kurds, Chechens and countless other examples. The Israeli/Palestinian problem seems capable of being settled only on an ethno-national basis.

Thus the so-called 'nation-state' turns out to be a sophisticated device for enabling trust to operate, often at much higher levels of population. This has created conditions for the surge of economic growth and creativity seen around much of the globe over the past couple of centuries. Greater attention to this fundamental trust issue would pay huge dividends in the international development industry. 

The conclusion I drew was short and sweet:

The European Union is a unique example of an attempt to create a wider context of trust at a supra-national level. But it too risks making a fundamental blunder by trying to insist on, or sneakily nudge people towards, a new 'European' uber-identity which supersedes supposedly drearily parochial 'national' identities. 

This won't work. Trust grows in subtle unexpected ways, usually slowly and through doses of unhappy trial and error. It can not be created by European elites telling us all what is good for us

Since then events have accelerated with startling speed. To the point where Reality is asserting itself, and Gideon Rachman in the Financial Times (19 September) is agreeing with me.

“The fact that national loyalties are much stronger than any common European loyalty means leaders are constrained in the solutions they can feasibly consider”

Which opens the issue of what is now ‘feasible’ as a solution for the Eurozone crisis.

No-one seems to know, or at least if there are feasible solutions out there it is impossible to identify and act on them in the maelstrom of bad news, bureaucratic sluggishness and sheer high-level policy nervousness.

The public tend not to realise just how personal these issues are. Once upon a time world leaders met only rarely if at all. They maintained their dignity if not power precisely by not meeting.

Now EU leaders are meeting and talking almost every month in one way or the other. This (for now) has the effect of making wars in Europe a lot less likely. How can Hans send his country to war against Juan and Maria’s countries when they had such a jolly expensive dinner together last week in Brussels?

There is nonetheless a downside. Which is that Trust reasserts itself in a peculiarly personal way. Private tiffs can spill over into public disagreements, and vice versa.

Imagine that you are the Dumpling Finance Minister who is getting it in the neck from the Dumpling media and public opinion for being far too lenient with the EU’s Olive tendency. You sit there at the EU Council meeting listening to an Olive drone on about urgent reforms which both of you know won’t be carried out quickly or honestly or even at all. Worse, the predecessor of this Olive (probably a cousin of the current one) actually lied at Council meetings time and again about the state of his country’s finances – that’s how the whole mess started.

Basically, your willingness to listen to any more Olive nonsense is trending towards absolute zero. Your exasperation is likely to burst out when it is your turn to speak. Meanwhile your unctuous officials sense your mood and are freezing out their Olive counterparts in the coffee breaks.

And lo! ‘Dialogue’ diminishes. Trust declines. Emails start to get no replies, phone-calls aren’t taken. Differences start to count for more than what people have in common. Those who have money start to bark out instructions to those who are hoping for yet more cheap loans. The whole mood shifts for the worse, defaulting to petulant defensiveness.

As if to make things much worse, along come the odious Brits smirking that they never signed up to the Eurozone project yet full of oh-so-clever ideas for fixing it, at someone else’s expense of course. And what was the lecture in Wroclaw from that annoying American Geithner all about? Who needs all this aggravation in their lives?

None of which helps find a feasible plan for dealing with the Eurozone’s illness.

The Economist claims to have found one:

Some have argued for a system of Eurobonds in which every country’s debt is backed by all. But the political oversight to ensure that high-spending countries do not fritter away other people’s money would take years to sort out—and one thing the euro zone does not have is time. The answer is to turn to the only institution that can credibly counter a collective loss of confidence on such a scale.

The ECB must declare that it stands behind all solvent countries’ sovereign debts and that it is ready to use unlimited resources to ward off market panic. That is consistent with the ECB’s goal to ensure price and financial stability for the euro zone as a whole. So long as governments are solvent and the bank sells the bonds back to the market after the crisis, this does not amount to monetising government debt. In today’s recessionary world, the ECB could buy several trillion euros-worth of bonds without unleashing inflation.

The Economist fairly notes that there is, ahem, a problem with this scheme:

The Economistconcedes that our rescue plan begins with a democratic deficit that needs to be fixed if steps towards closer fiscal union are to work. But there must (sic) be ways for good governments to force bad ones to keep in line that do not require the building of a huge new federal superstate.

Hmm. A ‘democratic deficit’? That suggests that the mighty elite brains who got us into this mess will come up with an even better plan, but then implement it with even less public scrutiny and direct accountability than now exists. To do that they may have to start taking serious legal short-cuts, to the point of side-stepping or ignoring key national laws and EU treaty constraints.

This is not good enough. Insofar as it means anything it sounds like a coup d’etat, or more precisely coup d’etats.

I might be prepared to sign away some of my own autonomy and my own little slice of my country’s autonomy in return for a wider economic package which makes sense, but only if I get to take part in a proper debate about the options. Which, given what is at stake in current circumstances, means a referendum

Imposed behind my back on the hoof by the people who led us into this fiasco? No way. That breaks the most profound Trust test which allows our society to work freely

Maybe we are heading towards an existential democratic crisis. Stressed-out European leaders round on their bewildered and increasingly angry voters, and tell them in blunt terms: “Your money. Or your democratic life”.

Charles Crawford was British Ambassador in Sarajevo, Belgrade and Warsaw. He is now a private consultant and writer: www.charlescrawford.biz. He tweets at @charlescrawford