Clem Sunter

Do Europeans exist?

2012-08-08 13:02

Clem Sunter

Recently, I went to Switzerland to address a meeting mainly composed of bankers most of whom worked in European countries. I was asked to present the latest global economic scenarios with particular reference to the future of the Eurozone. One of the scenarios, to which I attach a 20% probability, is a default by Italy or Spain triggering another round of financial panic similar to what occurred in 2008. The scenario is called “Forked Lightning” and once the lightning starts, there is not much you can do about it other than to go inside and wait for the lightning to stop.

One of the consequences is a possible break-up of the Euro with the countries going back to their original currencies. Interestingly, one of the members of the audience raised the notion that the first country to exit would not be Greece but Germany leaving the rest to fend for themselves. I thought this was unlikely as Germany’s exports are doing very well as a result of the cheap Euro.

However, it was at the dinner table that evening that the most fascinating conversation took place. The question was raised as to whether a species called Europeans really exists. You have Germans, French, Spanish, Italians, Poles, Hungarians but each have a different history, culture and language. They have different perceptions about one another not all of which are favourable. The idea that Brussels could turn this diverse collection of nations into a homogeneous group appeared quite far-fetched.

The example of the USA was raised where it is a reality that you have Americans. As one person at the table pointed out, California is probably as broke as Greece and, if not California, one of the other smaller American states. Yet this is covered up by the fact that most people look at America as a whole when it comes to judging the future of their economy. They do not drill down to individual states. Moreover, Americans have a common history even if Spanish is rivalling English as a dominant language in parts of the country. The citizens of America feel American despite many being recent immigrants. They put their hands on their chest when shown the stars and stripes. Their loyalty is assured.

By contrast, very few citizens of the individual countries that make up Europe feel European. No sense of common patriotism exists and when the going gets tough - as it is doing now - the average person in the street reverts to his or her basic roots. The opportunity for co-operation across borders diminishes in a hard times scenario. Accordingly, your average German believes that no more money should be lent to Greece and certainly Germany’s credit rating should not be tainted by the much lower rating of its southern neighbours. On the other hand, your average Greek, Italian or Spaniard feels that it is monstrously unfair that he or she has to take the full knock of increasingly severe austerity measures in order to save the Euro. Why not have ones own currency which can be devalued to stimulate exports and tourism?

Another point made in the discussion during the main course was that America has one head - President Obama - to whom all state governors are technically subservient. There is no way Angela Merkel is going to answer to the head of the European Commission like a state governor. Nor is any other head of state in Europe for that matter. So the proposition of getting a sufficient level of co-operation among members of the European Union to achieve fiscal and banking union to prop up monetary union may be imaginary.

I came away from the whole conversation wondering if the Euro was simply a bridge too far and an excuse for Brussels to have an enormously expensive bureaucracy. The whole European project should have been restricted to having a common market with nations trading in their own currencies. Some would say that is water under the bridge, but the tide can turn and water can flow in the opposite direction. Which brings me to my last point. I find it staggering that no major financial institution that I know of, no prominent economist that specialises in currencies and no futuristic think-tank in London or elsewhere has publicly played Euro break-up scenarios. What actually happens to holders of Euros? Do citizens get their own currency while foreigners outside Europe get a basket of currencies? How much will they lose?

Please tell me as I am now getting anxious. The situation is very messy and changes day by day. Markets rise, markets fall as fear comes and goes. It is forever thus but a little enlightenment would go a long way.



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