Originally produced on Oct. 2, 2017 for Mauldin Economics, LLC
By George Friedman
Imagine the following scenario: Texas votes to secede from the United States, sparking bitter negotiations between Austin and Washington. A neo-Nazi party wins seats in the California legislature. Cook County, home to Chicago, threatens to break away from Illinois to form its own state, while government officials, worried about losing such an economically vibrant region, furiously try to prevent the election from taking place. The federal government, meanwhile, vows to suspend North Carolina’s voting rights in Congress simply because it didn’t approve of its behavior. It considers doing likewise for Arizona.
In such a scenario, one might rightly conclude that something is terribly wrong with the United States.
The thing is, this is pretty much what is happening in Europe. The United Kingdom has voted to leave the European Union, and the negotiations over its departure are unpleasant, to put it mildly. Alternative for Germany, a party whose members have been compared to neo-Nazis, has won a surprising number of seats in Germany’s parliament. Catalonia, which is home to Barcelona, a large and economically vital city in Spain, held an independence referendum Oct. 1, something the government in Madrid has tried to stop. (Early reports indicate physical altercations between regional and national forces.) And the European Commission has threated to suspend Poland’s voting rights over actions taken by the Polish government, and has previously attacked the Hungarian government.
Putting Europe in Perspective
This is not meant to diminish the problems of the United States, nor is it meant to imply that these problems are perfectly analogous to Europe’s. The EU is a treaty organization; the US is a closely knit federation. Disintegration would hurt a singular country like the US more than it would a collection of singular states. Still, the degree of fragmentation, the mutual anger between member states and the central apparatus, and the separatism in Spain (the most significant of several such movements) seemed extremely serious to me.
I simply want to put Europe in perspective. For all its problems, the United States isn’t about to lose its second-largest economy. It isn’t revoking voting rights from state legislatures. It isn’t grappling with a legitimate secessionist movement. It doesn’t have bona fide neo-Nazis winning seats in its largest and most prosperous state. It may be a tough time to be American, but it is an especially tough time to be European.
But as discovered last week in Europe, this is not how European officials see the situation. They regard the problems as serious but not existential. They believe these problems can be managed… and point to economic growth in several of its member states as evidence of their management.
European officials believe the secession of the second-largest economy in Europe can be handled by a reasonable accommodation. The threat to Poland is simply the attempt to rectify a problem there. The rise of the racist right from street demonstrators to significant parties is unfortunate but not symptomatic of any larger issue. The desire of a major part of a constituent member to form a new country is a local problem that will be handled by Madrid.
An Odd Tranquility
Brussels may be taking things in stride, but Washington, which is contending with frankly lesser problems, is not. In fact, the US body politic is extremely agitated right now. There are institutional reasons for this. US politicians are intimately tied to their constituencies. Their animation is commensurate with the animation of the voters of their district. European officials don’t answer to constituencies. They are insulated from the pressure applied to a member state’s national representative. Their insulation can calm and clarify matters for them, but it can just as easily detach them from reality. Either way, their tranquility over serious issues—secession and dissolution—seems odd.
But other considerations put more distance between EU officials and the people of its member states. At its inception, the EU may have had political ends—it bound France and Germany together to keep them from going to war—but it is fundamentally an economic organization, one modeled on the assumption that humans are primarily economic creatures. The political upheavals of Europe are secondary and actually irrelevant to the real issue—making money. This is why the EU measures success in economic terms.
And it’s understandable why Europe would do so. War and politics have defined the economic fate of its nations. World War I, World War II and the Cold War had more impact on Europe, and indeed on Europe’s economy, than purely economic forces like supply and demand. The dangers of political violence are well understood there. If Europe can marginalize political upheaval and concentrate on prosperity, then perhaps it can at least ignore the political and military ghosts that haunt it. In other words, it can manage political disaffection so long as it prospers.
The problem, of course, is that prosperity was imperiled in 2008. The pride Brussels has in 2% economic growth (in some countries), and its belief that the EU has turned a corner because of it, ignores nine years of economic duress. It also ignores the political fallout of that duress. Welcome though 2% growth may be, it might be too modest for patching up the long-term political wounds inflicted by the 2008 financial crisis.
In contrast with the Americans, who tend to overstate their problems, Europeans tend to understate theirs. (Had the United States the class of issues Europe is dealing with, the roar of the crowd would be even more deafening than the roar is today.) It may well be that European leaders see things more clearly than I do. But I don’t think so. I see a pattern of disintegration that requires the energy generated by panic if it is to be solved. They see a need for a meeting of technocrats who will sort all this out. If they’re right, they should hold the meeting quickly.