http://www.politico.eu/

9/9/15

Europe returns to the 1930s

By Dalibor Rohac

From the EU’s response to refugees to Putin’s belligerence, there are eerie echoes from the past.

Czech police intercepted a group of Syrian asylum-seekers on a train headed for Germany. Upon being detained, the 200 or so refugees were marked with ink numbers on their forearms. While clearly a mishap, it was not the first time that Europeans were reminded of a period many would rather forget.

In July of this year, a Polish Member of the European Parliament, Janusz Korwin-Mikke, used the Nazi salute in a parliamentary debate. Two years earlier, members of the Greek Parliament for the far-right Golden Dawn party shouted “Heil Hitler” as their colleague Panagiotis Iliopoulos was being ejected from the chamber for unparliamentary language.

Historical parallels are always wrong or, at best, incomplete. But that does not mean that there is nothing to be learned from juxtaposing the past and the present. Much like in the 1930s, today’s Europe has five distinct elements of a geopolitical disaster in the making.

1. A dysfunctional monetary system

Economists from Milton Friedman and Anna Schwartz to Ben Bernanke concur that the Great Depression of the 1930s was largely a result of inept monetary policy. In the face of a large shock, central banks let Western economies contract and go through a painful period of downward price adjustments, instead of aggressively providing them with liquidity. One reason was their commitment to gold convertibility. In this respect, the euro is today’s equivalent of the interwar gold standard. While it is not anchored to the price of a real commodity and therefore allows for the conduct of countercyclical monetary policy, it prevents individual eurozone countries, such as Italy or Greece, from using exchange rate adjustments to alleviate economic pain.

The interwar gold standard eventually disintegrated. Evidence suggests that this was for the best. Countries that left it first and devalued, such as the United Kingdom and the Nordic countries, experienced more vigorous economic recoveries than those that remained trapped in the “golden fetters” for longer. Leaving the eurozone is both politically and technically a much riskier enterprise than severing the link to gold. That explains the length and severity of the recession in a country like Greece. It does not explain, however, why the European Central Bank exacerbated the economic downturn by systematically undershooting its own inflation target and by letting countries on the eurozone’s periphery slip into deflation.

2. A rising revisionist power

Vladimir Putin is not Adolf Hitler. For one, he does not seem to embrace a murderous ideology that would command him to try to take over the world or annihilate people of a specific ethnicity. However, much like Germany in the 1930s, today’s Russia is emerging as a belligerent, revisionist power. Similarly to Germany’s defeat in World War I, the collapse of the Soviet Union has left an imprint on the Russian psyche, which Putin has leveraged masterfully to strengthen his own hold on power.

Just like Germany in the 1930s, the regime in the Kremlin is trying to reassert itself in its traditional sphere of influence, through militarism and the destabilization of its neighbors, such as Moldova, Georgia, and Ukraine. True, the methods of warfare have changed since the 1930s. Energy prices and propaganda allow the Kremlin to reach even farther West and erode the democratic gains made by European countries that we might think escaped the bosom of the Soviet Union a long times ago.

3. A lack of leadership

International order in the interwar period proved to be fragile because of a lack of leadership by liberal democracies. Following World War I, the U.K. was too feeble to return to its role as a dominant world power. The United States, in turn, displayed little interest in events beyond its border.

Nearing the end of Barack Obama’s two terms in office, many Europeans — especially those in Central and Eastern Europe — feel that America has largely abandoned them, notwithstanding their shared security arrangements. Leadership in the EU is lacking as well: the U.K. is drifting away from the continent and has little appetite to play the role of a great world power again. The EU’s natural leader, Germany, lacks the ambition to come across as truly assertive in today’s world, perhaps due to the lasting trauma of World War II.

4. A crumbling system of international cooperation

The failure of free societies to lead has consequences. Specifically, it opens space for more nefarious forces to step in, and makes it impossible to uphold the norms of the international political and economic order. The 1930s demonstrated that the League of Nations was not an effective instrument to maintain the international rule of law. The organization failed to stop Italy’s aggression against Abyssinia, Japan’s invasion of China, and Hitler’s and Mussolini’s support of nationalists in the Spanish Civil War. The Great Depression was also marked by a failure of international economic governance, as leading Western nations resorted to protectionism.

Needless to say, the free societies of the West have done little to protect Ukraine or Georgia against Russia’s aggression. And while a common European market has not been destroyed by trade barriers, the ongoing refugee crisis in the EU provides an even more striking example of the failure of international cooperation. Because border protection and the processing of asylum requests in the EU has been left to the individual member states, the inflow of refugees into the EU has become a commons problem.

Instead of a unified European response — welcoming refugees — EU member states are re-introducing border controls, marking the end of the freedom of movement within the EU. Needless to say, the refugee crisis brings about other disturbing parallels. In 1938, a Daily Mail headline warned Britons of “German Jews pouring into this country.” Switch the country and the religion, and the headlines today are eerily similar.

5. Losing the battle of ideas

In the 1930s, the defenders of democracy and free enterprise were on the defensive. Many Western intellectuals were convinced of the superiority of the Soviet system under Stalin’s rule, though some of them, such as André Gide or Arthur Koestler, sobered up after actually visiting the USSR. In the U.K., Oswald Mosley’s British Union of Fascists became a respectable political force. Incidentally, the publisher of the Daily Mail, Harold Harmsworth, happened to be a fan too.

Today, populist far-right and far-left political groups are on the rise once more. In Hungary, the governing Fidesz party is stepping up its xenophobic rhetoric in order to capture the electorate of Jobbik, the Neo-Nazi group that has become the second most popular party in the country. In Greece, the economic crisis brought to power Syriza, a coalition of Marxists, Maoists, self-styled “progressive Eurosceptics” and other left-wingers of all possible stripes, with connections to the Kremlin. The U.K.’s Labour Party is likely to elect Jeremy Corbyn, a man with a troubling network of friends and fringe foreign policy views, as its leader. Where there once were mainstream politicians, there is now Front National, Pegida, Podemos, or the anti-immigration Sweden Democrats, currently the leading political group in the country.

While worrying, none of these trends are irreversible. Nor do they mean that Europe is about to relive the most awful episode of its history. Yet, unless the continent changes its course, Europe is more than likely to transform from a harbinger of prosperity and democracy into a far less hospitable and more dangerous place.