Europe’s Civic Cultures and the Euro Crisis

Europe’s Civic Cultures and the Euro Crisis

J. Riemer: Culture and the Euro Crisis

Michael Douglas is a movie star who won an Oscar for his role as a corporate raider in Wall Street. Michael Lewis was a real-life bond trader who became a celebrity by leveraging three years at Salomon Brothers into a lifelong career as a writer of entertaining books on business, starting with the best-seller Liar’s Poker. The messages they preached, on screen and in print, were coincidentally both so beguiling that they confused their audiences into drawing the opposite lesson from what they meant to convey. Both film and book were intended as admonitions about the dangers of casino capitalism, yet each was widely misread as an invitation to join the go-go lifestyle of the burgeoning 1980s financial sector. Fans told Douglas they were inspired, not appalled, by his character Gordon Gekko’s infamous “greed is good” speech. Lewis hoped his book would encourage “some bright kid at…Ohio State to be…an oceanographer…[and] spurn the offer from Morgan Stanley.” But the author soon found himself swamped with letters from college students who “read my book as a how-to manual” for striking it rich on the Street.

Is there any danger that readers might also get the wrong idea about Boomerang, Michael Lewis’s latest venture in the genre he describes as “financial-disaster tourism”? Wall Street has bounced back to business as usual following its government bailout, and the same credit rating agencies that awarded high scores to shaky financial market products like collateralized debt obligations are now getting tough on governments’ sovereign debts. Might some college grads see the distressed European markets where Lewis goes slumming as places to troll for exciting new business opportunities? Will they apprentice with American firms that teach them how to short the euro or buy up the bargain-basement assets European banks are unloading in order to meet new, stricter capital requirements? Will Kyle Bass, the Dallas hedge fund manager Lewis encountered while researching The Big Short, his book about a few visionary investors who made a killing on the housing crash, and whom he now introduces in Boomerang as a prophet of the coming European debacle, be the Millennial Generation’s Gordon Gekko?

It’s unlikely that Lewis’s travelogue can serve as a guidebook, a kind of Let’s Go Financial Crisis Europe. Today’s Wall Street, though unabashed and profitable, is also a downsized Wall Street, and the “kid from Ohio State” is having trouble finding any kind of job. Still, there are other perils in relying too much on the hit-and-miss insights about markets and politics in Lewis’s jet’s-eye view of the transatlantic economy (in the book he flies from Texas to Iceland, across Greece, Ireland, and Germany, and then home to California).

Lewis does get several things right about the critical state of these regions’ economies today, chiefly because he appreciates that “[a]cross Europe just now men who thought their title was ‘minister of finance’ have woken up to the idea that their job is actually government bond salesman.” And there is something to be said for seeing the Old World through American eyes, whether those of Lewis, the bicoastal Ivy Leaguer undertaking a grand tour of select European crisis spots, or his provincial guru Bass, “a guy sitting in an office in Dallas, Texas, making sweeping claims about the future of countries he’d hardly set foot in.” American judgments about Europe, whether pronounced by investors like Bass or policy-makers like Treasury Secretary Timothy Geithner, have recently given Frankfurt and Brussels a wake-up call about their lackluster and makeshift handling of the euro crisis.

But if European Union insiders need a jolt to be shaken out of their complacency about the eurozone’s slide, outsiders like Lewis and Bass veer too much in the opposite direction with their combination of market savvy and almost willful ignorance of how European politics works. Boomerang touches on important issues (like corruption, and the different ways that nations reacted to the temptations of exotic financial products) and players (including the most influential, best-networked German politico you’ve never heard of) but doesn’t provide the political context required to make sense of the European debt crisis.

This is a shame, because Lewis’s vignettes might have helped elevate the frequently superficial transatlantic discourse about deficits and stimulus taking place in op-ed pages, Republican primary debates, and Congress. A passing reference to the bugaboo of Greek debt is now one of the arrows in the rhetorical quiver used by any born-again GOP “deficit hawk” ranting against the European values that are supposedly endangering “American exceptionalism” under the Obama administration. Ironically, liberal American commentators like Paul Krugman have some positive things to say about the United States as a model for Europe. We stimulate our economy while the eurozone’s emphasis on austerity threatens to throttle growth. We have a fiscal union and mobile labor market to complement our common currency, so that the dollar (unlike the euro) isn’t threatened when California (as opposed to Greece) teeters toward bankruptcy. Lewis does end his book with a chapter on California, but his major revelation is from the theory of a neuroscientist who happens to have an office outside the distressed down of Vallejo, which Lewis had just visited, about how the survival-oriented “lizard core” of our brains makes us “neurologically ill-designed to be modern Americans” capable of getting a grip on affluence.

For the European chapters of Boomerang, Lewis’s major conceit is not neurobiological but anthropological. In the New York Times and elsewhere, a debate is being waged about whether the eurozone’s troubles are best understood as cultural (about venal, spendthrift Greeks and upright, industrious Germans) or economic (about market “fundamentals” like inflation rates and trade balances). Germany and its northern European allies (Austria, the Netherlands, Finland) present the euro crisis as a cultural morality tale couched in quantifiable economic terms: the eurozone’s “stability criteria” (deficits should be no larger than 3 percent and public debts no greater than 60 per cent of GDP). Lewis wants a deeper cultural explanation for what the financial number crunchers tell him about each country, but he ends up drawing on national character stereotypes. The argument of the book is summarized in this short paragraph:

Icelanders wanted to stop fishing and become investment bankers. The Greeks wanted to turn their country into a piñata stuffed with cash and allow as many citizens as possible to take a whack at it. The Germans wanted to be even more German; the Irish wanted to stop being Irish.

In brief, the Europeans who strayed from their national character got into trouble, while the one country that stuck to what it does best is stuck bailing out the others. Lewis sometimes derives his notions of national character traits from seemingly random incidents that happen to him on his travels, which occasionally yield a certain logic. He notes that Icelandic fishermen, the dominant (and very male) constituency backing the Independence Party that governed during the country’s transformation into a banking hothouse, always had to gamble for big catches in rough waters. So it was only natural that they try their luck, with little preparation, at high-stakes international finance. But he also makes much of Icelanders who aggressively pushed past him on airplanes, in bars, and on the street, without clearly stating what this shows us about Iceland’s place in the financial crisis.

The reader of Boomerang gets little sense of whether or how the many changes of government catalyzed by the financial crisis led to any sobering reassessment of the economic policies each country pursued. Lewis notes that, with the Independence Party’s election losses and a social democratic lesbian taking over as prime minister of Iceland, priorities are bound to change, but he doesn’t say how. In Greece he spends so much time in a monastery whose land-swapping deal was one of the scandals that brought down the conservative New Democracy Party that he has almost nothing to say about whether Papandreou’s Panhellenic Socialist Movement ever had any chance of changing the country’s corrupt ways. In Dublin he gives MP Joan Burton from the then-opposition Labour Party, which “offers the closest thing to a dissenting opinion and critique of Irish capitalism” in a political system dominated by two center-right parties, the chance to make shrewd observations about how her country changed under the housing boom-and-bust overseen by the Fianna Fáil government. But Lewis never asks the really interesting question: Why has the new government, in which Labour is the junior partner to Fine Gael, stuck to the same hard-line negotiating position on taxation Fianna Fáil held during its bailout talks with the European Central Bank (ECB) and countries like Germany? We’ve ended up with the odd spectacle of a center-left government in Dublin refusing demands by a conservative government in Berlin that Ireland raise corporate taxes to help shrink its budget gap.

In his chapter on Germany, Lewis purports to explain the one country that never strayed from its pre-boom habits, and is now calling the shots in the eurozone, by asserting that Germans are anal-compulsive, simultaneously repulsed by and obsessed with filthy lucre. His trip includes a stop at Hamburg’s Reeperbahn, the red-light district that gave birth to the Beatles, where he and his guide search for a mud-wrestling arena they tellingly never find. The venue where “[n]aked women fought in a metaphorical ring of filth while the spectators wore plastic caps, a sort of head condom, to avoid being splattered” also serves as a metaphor for German banking. Just as (in the words of an anthropologist Lewis quotes) “the audience can remain clean while enjoying dirt,” staid German bankers enjoyed buying the credit default swaps Wall Street peddled them because these transactions wouldn’t splatter their own economy. Actually, German banks were besmeared, but Lewis makes much of the way Germany emerged from the financial crisis squeaky clean, its unemployment rate dropping just as joblessness reached new highs in Ireland and the distressed south. A major reason German banks splurged on Wall Street junk, according to Lewis, is that rating agencies misleadingly gave these products high grades, and Germans naively believe in rules.

Lewis may be onto something, but by neglecting the political dimension of the eurozone crisis in favor of a national stereotype he misses the story. Postwar Germany’s conception of market order is indeed based on rules, especially where money and banking are concerned. When a united Germany gave up the deutschmark in favor of the euro, it enshrined these rules (like the stability criteria mentioned above) in the charter and operation of the ECB, which was modeled on Germany’s central bank, the Bundesbank. Other countries, notably France, agreed on these self-imposed rules, including for new members of the club, like Greece. Former ECB president Jean-Claude Trichet began his career as a central banker fighting German rules at the Banque de France and ended it bragging that he was more Teutonic than the Teutons, since the euro under his tenure had lower inflation than the deutschmark.

Yet Trichet is also heir to a tradition of vigorous intervention in markets that Germans suspect the French have never shaken. As Greece, Ireland, and Portugal went to the brink, President Sarkozy and French-trained civil servants in Paris, Frankfurt, and Washington made a full-court press on Berlin to convince the Merkel government that something had to be done. The entire drama of the past two years has been in essence a conflict pitting French pressure for ad hoc interventions by the ECB and some new emergency funds against German insistence that clear rules about avoiding bailouts, having private banks share losses, and maintaining central bank independence be observed.

At the center of the intricate negotiations behind these Franco-German accords has been a fortyish German civil servant named Jörg Asmussen, not a household name unless you are a devoted reader of the German business press or the Financial Times. Lewis had the good sense to interview Asmussen, and a preview of Boomerang’s Germany chapter in Vanity Fair entitled “It’s The Economy, Dummkopf!” features a photo of this earnest-looking mid-career official. Lewis is surprised to learn that Asmussen, the number one deputy in Germany’s Finance Ministry, has never contemplated what his American counterpart would surely do at his age: cash in on his government experience by taking a lucrative private sector job. Though Lewis doesn’t see this, Asmussen’s sense of propriety is part of that rules-oriented ethos that makes Germany different from France, where a revolving door between government and business does exist but, unlike the Washington–Wall Street nexus, has the statist intention of making Parisian policy-makers better planners.

Another important thing Lewis misses about Asmussen is that this he is a card-carrying member of the Social Democratic Party, kept on for the number two job at Finance when Christian Democrat Wolfgang Schäuble replaced Social Democrat Peer Steinbrück as Finance Minister in 2009. Asmussen, who will soon be moving to the European Central Bank, has been the hub in a circle of more conservative policy-makers, two of whom became heads of the Bundesbank.

There is little difference between Christian Democrats and Social Democrats on economic policy. Asmussen’s old boss, Steinbrück, who ran the Finance Ministry in Chancellor Merkel’s unity government during the first, pre-euro-bailout phase of the financial crisis, was just as much of a deficit hawk as anyone in the current center-right government. His opposition to Keynesian demand stimulus moved Paul Krugman to blog against “The Economic Consequences of Herr Steinbrueck” in a post that channeled Keynes’s critique of Churchill’s economic policy follies from the 1920s. Today Steinbrück is positioning himself as a statesmanlike alternative to Merkel, but their differences are largely tactical. The SPD, now in opposition, is capitalizing on the chancellor’s perceived weakness as an overly reactive leader who “muddles through” and keeps “kicking the can down the road.” On the margins, an SPD-led government might take greater care to see that austerity not strangle growth in weak economies like Greece’s, and it might be willing to introduce a new EU-backed government “Eurobond” that is anathema to Merkel’s coalition. But behind the scenes, Germany is still tacitly governed by a Grand Coalition of center-left and center-right.

The real divide in Europe now is not about ideology, national character, or even economics, but about the political culture of regulation and crisis management. It’s a minor fissure across the Rhine, between the different administrative styles at loggerheads in the Franco-German duo that dominates the eurozone. The gap is larger between the northern countries, which have independent civil services and “clean government” that are a legacy of absolutism and nineteenth-century reforms, and the southern countries, where patronage and tax evasion are traditional and widespread.

Since Lewis finished his book, both Italy and Greece have come under the rule of technocrats. Italy, half-legatee to a “Napoleonic state” that supplied it with a nominally independent civil service, has lots of experience with technocrats who would periodically clean house after Christian Democratic patronage fueled inflation during the Cold War. Greece, both of whose major parties are job-dispensing machines long run by patriarchs, is new to the experience of being governed by experts. These clashes between the ways economies are governed will prove decisive. Had Lewis paid more attention to what goes on inside European politics, he might have captioned his book, “It’s The Civic Culture, Dummkopf!”

Jeremiah Riemer is a political scientist and translator who has taught at universities in the United States and Germany. This spring he is teaching a course on “The German Model and Its Discontents” at Georgetown University.