The hard challenges for Europe, an overly soft continent

May 29, 2012

Christine Lagarde, managing director of the International Monetary Fund, gave an interview to the Guardian last Friday. In it, she offered some advice to the people of Greece. A succinct summation: “Stop whining.”

She says that when she thinks of the Greeks, she has sympathy for their plight, but: “Do you know what? As far as Athens is concerned, I also think about all these people who are trying to escape tax all the time.” And there is greater sympathy for the absolutely poor: “I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time.”

Lagarde does not in the least resemble my mother, except in one thing: When, as a child, I would whine “I don’t like it” about food she had prepared, she had a stock reply: “There’s some wee boy in Africa that would be glad of that!” (I would have been glad if he had had it – my mother was fond of tripe and couldn’t grasp my hatred of it.)

Lagarde is on the same track as my mother: Remember, in your refusal, that there are many who are infinitely worse off than you. Lagarde’s target was ostensibly Greece, but her real aim was at the countries of the West, including her own, that in the last two decades have luxuriated twice. First, in being the victors in the Cold War, as they watched their systems of a free market and democratic politics be judged superior by erstwhile enemies. Later, in enjoying a boom which, with blips, saw all boats rise, even as the super-yachts rose (and rise still) further and faster than the smaller craft.

Put simply – and in the welter of competing complexities with which we, especially those of us in Europe, are confronted, something should be simply put – the West, and particularly most of Europe, has made its beds too soft; and now no one can lie on them. We must exchange fluffy for harder, thinner mattresses, and we must hope it will be good for us.

There are exceptions. Although a receding tide beaches all boats, some countries are much fitter than others. Of these, Germany (among the larger countries) and Finland (among the smaller) stand out. Both conduct themselves with a blend of social democracy and bourgeois propriety, a mixture that emphasizes hard work and self-improvement, as well as a broadly egalitarian ethos.

There is too little of this elsewhere in Europe. Weak and partly corrupt governments in Greece were unable or unwilling to make its citizens observe their civic duties, including paying tax. In the past two decades, Italy’s dominant politician, Silvio Berlusconi, debauched an already wildly self-serving political class, in which the opposition was too split and uncertain to offer an alternative governing narrative. Spain and Ireland allowed property bubbles to grow huge. Britain racked up a vast external (both public and private) debt, second highest in the world in absolute terms, at nearly $10 trillion after the U.S.’s near $15 trillion.

The weaker economies needed to make large structural reforms, but those they did make were small and inadequate to the task. Yet for the 1990s and the 2000s, the closer union ushered in by the 1992 Maastrich Treaty and the waves of cheap credit allowed the unreconstructed states to disguise their problems with cheap credit.

The euro, which came into service on Jan. 1, 2002, and is now the second most widely traded currency (after the dollar), now reels. In a recent conversation with Martin Wolf of the FT, the U.S. economist and New York Times columnist Paul Krugman said of the euro zone that:

I think it was basically fated, from the day the Maastricht Treaty was signed … the setup is fundamentally not workable. What’s interesting is that the euro itself created the asymmetric shocks that are now destroying it (via the capital flows it engendered). Not only have they created something incapable of dealing with shocks but the creation engendered the shocks that are destroying it.” (Emphasis mine.)

Krugman’s point about the incapacity of the zone to deal with its problems is the largest reason why the Brits and Americans are getting an easier ride than many members of the zone itself. The issue is as much political as economic: a fear on the part of the markets that the institutions for dealing with the crisis exist outside the zone. With each crisis meeting that passes with no solution, and with each forecast that a Greek exit is likely, that fear deepens.

We Europeans – in and out of the zone – are trapped, as the Economist put it, between “separate or superstate … one road leads to the full break-up of the euro with all its economic and political repercussions. The other involves an unprecedented transfer of wealth across Europe’s borders and, in return, a corresponding surrender of sovereignty.”

Characteristically, the magazine had a solution: a moderate version of “more Europe,” which it admitted was “tricky.” More Europe – that is, greater fiscal and oversight powers centralized in the European Commission – would, on most analyses, certainly be tricky. It would be less disruptive to the European and the world economy than a breakup, which would be very bad news for everyone. But Europe’s desire to create even a modest version of a superstate is presently lacking. And if it were found, it would have to ride a storm – social, economic, and above all political: even violently so.

Politically, what must happen in a “superstate” of any version is that weak and little-trusted European Union institutions would have to take upon themselves more power. But all the indications are that Europeans want them to have less. These centralized bodies would be committed to guide a large part of a continent through very rocky economic times for the foreseeable future; at the same time, they would need to develop a cadre of politicians and officials who could speak and appeal, not just to their co-nationals but to the “Europeans” – a diverse set of peoples with many languages, with something of a cultural identity but a very weak political one.

Joe Nye, the Harvard professor who invented and constantly develops the concept of “soft power”, the ability of states to project values and culture, said during a talk at a dinner organized by the European Council on Foreign Relations in London last week that the euro crisis had “exposed the limited trust among member states.” He rejected the parallel made between the U.S. today and the declining Roman Empire (he said American decline was relative but not absolute) and asked a different, uncomfortable question: Is it possible that Europe, not America, is more like the Roman Empire in decline? Are Europeans, too, disintegrating from within?

Will our culture and an educated view of our ultimate self-interest see us through, and keep us from the fate of ancient Rome? Only if we heed the strictures of Lagarde, who implores that we observe the really poor, remember our luck and pay our taxes. “Europeans” need enough solidarity to forgive the mistake that was the careless creation of the euro, avert our minds from the undemocratic capture of centralized power that a concerted response to the crisis requires, and keep taking a medicine that politicians we hardly know would administer.

That is a very, very tall order, but it is the order of the day.

PHOTO: International Monetary Fund Managing Director Christine Lagarde speaks at a news conference at the Treasury in London, May 22, 2012. REUTERS/Oli Scarff/Pool


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Are Europeans too soft. Yes, just look at how they are trying to build their Imperial superstate? Nothing but a crumbling currency for a foundation and non entities like a Herman Van Rompuy for a Caesar. That the Euro was introduced despite or, perhaps, in spite of the fact that there was no real desire for genuine integration was obvious even before it became apparent half the nations in the EU were bankrupt. Remember the “Polish plumber”? The ‘no’ votes on the Lisbon treaty?

Sheesh, anyone could see that “Europe” only existed in the eyes and dreams of washed up local politicians like a Romano Prodi or Tony Blair as new sinecures with even greater power and less accountability than running a middling nation state!

Posted by sangell | Report as abusive

I don’t see anything better than the euro, the euro zone or the EU. does anyone have a better idea that has a chance of becoming reality? The problem was letting countries borrow unilaterally while effectively making the entire zone responsible for paying back the loans. My suggestion is to fix that aspect right now – no more unilateral loans by any EU country.

Posted by justine184 | Report as abusive

They’d all be better off never having done the Euro and keeping their own currencies. Some smart people were saying that 10 years ago. Now they can’t unwind it, and there’s no roadmap to dig themselves out.

Posted by jambrytay | Report as abusive

End tax and spend. End all the entitlement/social programs for the freeloaders.

One currency backed by all nations is a recipe for disaster. Some nations are fiscally responsible, others are not.

Let each nation be responsible for their finances.

Posted by ALLSOLUTIONS | Report as abusive

The clothes have no emperor, but if anyone’s foot fits the glass slipper, it’s Lagarde’s. But really, wasn’t the EU project entirely directed at avoiding WWIII? As long as THAT’S avoided, all other failures are minor in comparison. The main thing is, Europe hasn’t had a genocidal war since the 1940s. I mean, the 1990s.

Posted by TobyONottoby | Report as abusive


Quite right. Bring back borrow and spend. Reserve all the entitlement/social programs for the big financial institutions.

Posted by TobyONottoby | Report as abusive

What Europe needs right now is the modern version of the Alexander the Great and his way of solving the very complex European problems in cutting the present day gordian knot. But this time Alexander is not going to be the Greek; it must be the German. I do not see why the solution is not going to be Germany exits the Eurozone? The rest of the Eurozone countries can run the monetary policy as they like, they can print the Euros as they need to pay back their Euro denominated debts in their Fiat currency, make their workforce competitive again … On the other side Germany can reintroduce deutsche marks which will be at par (if not higher) than the Euro left to the others, can assume the part of liabilities on the ECB balance sheet (30%) for a 30% of collateral (both in Euros)at practically no loss for them, can afford to loose (subsidize) on some on the Bundesbank accumulated liabilities in Euros (some 600 billion Euros) but, at the end, the bill is going to be smaller than the cost of being the only solvent banker in Eurozone. So why German politicians are not pursuing this road? Because, as it was mentined, Eurozone is the “political” project, like the Potemkin village, which do not have any economic justification unless the creation of the united Europe becomes reality. But Europe had much more time and much more and “critical” events in the past then the US when that would be the best outcome and still, it did not happen. Regardless why it did not happen in the past what are the core issues there, we should remember that the “historia est magistra vitae” and should finally learn to distinguish “utopia from reality”.

Posted by feniks_r | Report as abusive

If Europe wants a member free trade zone and a cross border currency union as it patently does, then individual countries in that union cannot have independent fiscal policy programmes. They are going to have to swallow their ‘sovereignty’ and pool their fiscal risk into the whole, in the interests of the viability of the get over the national character stance, as far as the economics go (celebrate your individual cultural identities). It is better off to have one large European trading block whose GDP is equal to if not greater than the USA. A disciplined approach to economy will raise the tide and all the boats

Posted by bryanwilkins | Report as abusive

The wealth disparity is greater than it has been in 100 years. Some people are getting beached, others are riding a tsunami of cash.

Posted by DanAllen | Report as abusive

Interesting comparison of the decline of ancient Rome and the situation in the USA and Europe.

Rome declined because its ethos, military might and subjugation of other peoples, was incompatible with newly dominant Christian ethos, which had no place for the Roman one it displaced. In effect, the Roman elite, who had made Rome great, but who rejected Christianity, gave up, since they couldn’t regain political power.

It is hard to imagine that USA is in such a crisis, but their failure to collect enough taxes to fund the government is reminiscent of Rome before the 4th century reforms.

Certainly, there might be something to be discovered in Europe’s loss of a sense of purpose, and the split between the north and the south.

The Greek people don’t want to lose their pensions, but surely they don’t expect the German to pay them; yet that is the only option available if pensions are not cut. On the other hand, while their salvation could be achieved through tourism, they are doing their best to discourage potential tourists.

The Spanish at least have elected a government who want to fix the problem, and Ireland seems to be on the mend. Goodness knows what is going to happen in France with a president promising to abandon austerity.

The German solution is surely the only way ahead: work, work, work; pay your taxes; look to earn your money before you spend it. This is far from the current economic commentary, which thinks that more of the old-fashioned “spend your way to prosperity” is the way to go.

Posted by GrahamDLovell | Report as abusive

Christine Lagarde is a distinguished member of the elite EU Banksters.
Now that their Ponzi scheme has been exposed they all have their explanations….
Another Nuremberg on the horizon.

Posted by GMavros | Report as abusive

Oh, please!

Stop your “holier than thou attitude”.

This continual Euro-bashing by authors is getting more than a bit tiring.

Your ignorance of European history and peoples — including your call for a “superstate” — is stupid beyond belief.

And your personal prejudices are showing.


By the way, in Europe Christine LaGarde whom you deify (comparing her to your mother?) was severely castigated for those same remarks you included, mainly because of her lifestyle.

A lifestyle which includes “an official of an international institution, her salary of $467,940 a year plus $83,760 additional allowance a year that is not subject to any taxes.

Lagarde, 56, receives a pay and benefits package worth more than American president Barack Obama earns from the United States government, and he pays taxes on it.” may/29/christine-lagarde-pays-no-tax?INT CMP=SRCH

Posted by PseudoTurtle | Report as abusive

Touché & Bravo.
Don’t expect much from ‘journalists’ who come a-dozen-a-dime, especially those who pretend to be also politicians & economists, and everything else.

Posted by GMavros | Report as abusive

Re: “Britain racked up a vast external (both public and private) debt, second highest in the world in absolute terms, at nearly $10 trillion after the U.S.’s near $15 trillion.”

Um yes, under the brilliant administration of those two whizz kids Tony Blair and Gordon Brown. And who was one of the dynamic duo’s leading cheerleaders in the media during this period?

One John Lloyd, of course. Fancy that!

Posted by celtthedog | Report as abusive

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