PRINCETON – In the increasingly nerve-wracking standoff between Greece and the European Union, the Greek authorities seem to be claiming a democratic mandate that extends beyond their country’s borders. The new government, led by the far-left Syriza party, portrays itself not just as a negotiator trying to get a good deal for Greece, but as the champion of a solution to a supposedly European problem of excessive government debt. That stance fails to acknowledge that Greece’s interlocutors have democratic responsibilities of their own.
Modern democratic politics can be thought of as involving two types of tasks: the formulation of laws based on general principles, and the redistribution of resources via government taxation and expenditure. Within a single country, these tasks are relatively uncomplicated. But a country’s international relations can impose powerful constraints on its government.
Such constraints are particularly strong when the government must operate within a wider polity, as is true of Greece by virtue of its EU membership. But any process of integration, whether European or global, requires some adjustment of domestic preferences and laws. A government’s ability to redistribute wealth will also be limited if raising taxes causes capital or high-income earners to flee the country.
In making its case for a reduction of Greece’s debt burden, Syriza draws heavily on the history of Germany, its principal creditor and, in the eyes of many Greeks, their country’s primary antagonist. According to Syriza’s depiction of events, Germany’s interwar experiment in democracy failed because international creditors imposed austerity. Germany and the EU, the argument goes, should apply that lesson to Greece.
That certainly sounds compelling, and another aspect of Syriza’s analogy seems, at first glance, to seal the case: Greece was one of the countries that suffered most after the German Weimar Republic collapsed in 1933. During the Nazi occupation, the government was forced to provide Germany with a loan that has yet to be repaid. Thus, Germany bears a historic responsibility to its southern European partners.
But history can never be so neatly potted, and Syriza’s interpretation suffers from some fatal lacunae. For example, though the reparations demanded by the victors of World War I were certainly burdensome, by 1932 it had become clear that they would never be paid. And yet halting the payments did not stabilize German politics. On the contrary, it cleared the way for increasingly radical agendas.
If the country’s populists (the Nazis) had come to power before 1932, they would have faced an impossible choice. If they continued the reparation payments or attempted to negotiate with Germany’s “creditors,” they would have discredited themselves in the eyes of their supporters. But the alternative – implementation of their program and a default on Germany’s debt – would have triggered a deeper financial crisis (and possibly a military invasion).
It was only after payments were suspended that the German response to the Great Depression became so destructive. When Adolf Hitler came to power, he introduced an entirely new solution to the problem of redistribution. If Germany’s resources were limited, he would redistribute other countries’ resources – the resources of countries like Greece.
This view flips Syriza’s argument on its head. Like Hitler’s solution, the proposed cancellation of Greek debt is an attempt to redistribute other countries’ gains. Were it to succeed, it would strain every other country in the eurozone, including those, like Italy and Spain, that have had to carry out their own belt-tightening.
Greece’s charismatic finance minister, Yanis Varoufakis, recently cited a lesson from his country’s ancient history: “Sometimes the larger, powerful democracies undermined themselves by crushing the smaller ones.” He should consider the corollary: Small countries looking for easy gains by blowing up the international system can also end up undermining themselves.
When democracy is used to justify shifting a country’s burden onto its neighbors, integration becomes impossible – and both democracy and the international order may be jeopardized. Just as financial contagion can spread market uncertainties through neighboring economies, so, too, can political contagion spread the adoption of a zero-sum mentality.
If Europe is to find a solution to its economic problems, it will have to overcome its political challenges first, and craft a form of deliberation that includes all elected governments of the eurozone (the best current approximation is the Eurogroup of eurozone finance ministers). As long as negotiations are reduced to national governments playing games of chicken, the only result will be chaos – and not just in the markets.
Copyright: Project Syndicate, 2015.
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