It’s not often that one thinks of George Soros going viral but his speech the other day on Europe and the EU has become the talk of more than just the business community. The full speech is on Soros’ website and runs through a broad range of concepts from the scientific method to social behavior. In it, Soros argues that the European Union was designed as:
- a fantastical object – unreal but immensely attractive
- a product of piecemeal social engineering
- deliberately inadequate so as to require further steps
- When those steps didn’t happen, the bottom began to fall out
I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.
The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.
Germany used to be in the forefront of the effort. When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it. When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement. At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.
The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.
In effect, Europe got a financial union without a political union and as Soros goes on to argue, the founders thought that the that “. . . when the need arose the political will could be generated to take the necessary steps towards a political union.” Obviously, it hasn’t worked out that way.
This is not a pretty picture and the next few months will be decisive not only for the EU but for nations around the globe. Spain is teetering on the brink, Greece is headed toward elections that will lead them out of the EU and into financial default or continue within it and suffer greater economic deprivation (in other words, basically the same no matter which way they vote for the person on the street). European leaders are looking at proposals for greater monetary integration but the political will may not be there. And in effect, they are still focusing on the monetary side and not the political side.
As of this morning, the markets are plunging in Asia and it will be a turbulent week in the European and U.S. financial markets.
Buckle up and hold tight.