‘The lamps are going out all over Europe. We shall not see them lit again in our time’
These famous – and now seemingly prophetic – words were uttered by Sir Edward Grey, the British foreign secretary, as dusk fell over London on August 3,1914.Grey had just sent an ultimatum to Germany, following the latter’s invasion of Belgium, but he knew it would have no impact and that the next day his country, along with all the European powers, would be at war.
Seeing the lamplighters turning up the gas lamps on Whitehall and King Charles Street on that late summer evening, he linked the humdrum daily routine to the epoch-making events then getting under way. The same was happening here. People went about their business in the most leisurely way. Dun Laoghaire Pier was full, as was the centre of Dublin; there was no real sense of what was to come.
Technically, of course, Grey was wrong.
The lights went on again across Europe, albeit over four terrible years later, and life resumed some kind of normality.
However, substantively, his assessment was entirely accurate. August 1914marked a true turning point in European and world history, the end of an era which stretched back at least to 1870 and, in many ways, to the post-Napoleonic settlement almost a century before.
Most of the European ‘great powers’ that entered the war did not survive it – the Austro-Hungarian, Ottoman, Russian and German empires were all shattered and destroyed between 1914 and 1918.Even those that seemingly emerged intact – and even victorious – namely Britain, France and Italy, were irreparably scarred and weakened.
For example, by 1921, following our independence, Britain, the victorious World War I power, had lost more of its pre-1914 landmass than Germany, the defeated power.
The crisis gripping and steadily strangling Europe today is equally devastating, although fortunately almost bloodless. By ‘today’, I mean since 2008, when Europe first awoke to the fact that the supposedly ‘limited’ ‘regional’ subprime crisis in the US involved the Old Continent too – up to its neck.
The meltdown of Iceland and the abrupt collapse of the Irish property binge were the harbingers of a much more widespread disaster, as were the bank runs in Britain and the bailouts in Germany.
But, like London in 1914,most people were determined to pretend that it was irrelevant to them and continued to live in la-la land.
It is a historical fact – amazing, but steadily less so in light of current developments – that for several weeks following the declaration of war, the 1914 English cricket season continued under the banner of ‘business as usual’.
Only after WG Grace, the Grand Old Man of English cricket, wrote a letter to the Times in late August did the MCC come to its senses. ‘‘I think the time has arrived when the county cricket season should be closed, for it is not fitting at a time like this that able-bodied men should be playing cricket by day and pleasure seekers look on,” he harrumphed.
‘‘I should like to see all first-class cricketers of suitable age set a good example and come to the help of their country without delay in its hour of need.”
We are seeing the same today, as the EU tries to patch things up and focus on ‘important’ events such as the Eurovision Song Context. However, the recent mega bailout, which no one really believes will do anything but buy time, has evocative undertones not just for the pre-war delusion, but the post-war economic solution.
Think about the idea of burdening the taxpayer with the sins of the European banks as reparations. JM Keynes argued that if the Allies lumbered Germany with huge reparations, the German economy would have to become hyper-competitive to find the extra hard currency to pay the reparations and it would destroy jobs in Britain and France as a result.
He argued that the debt relief for Germany would ultimately make Britain and France safer and that imposing reparations would make them less, not more, secure.
He also threw in the idea that an unstable Germany might be a dangerous Germany and spiced his polemics up with the forecast that the major currency arrangement of the time, the gold standard, was the problem, not the solution. All this was heresy to the people who had failed to see the war coming but felt entitled to be listened to after the devastation.
Yet Keynes was right and Churchill, when asked in later life about the biggest mistakes of his life, stated that one of them was not listening to Keynes in 1927 when he told him as chancellor to take Britain off the gold standard.
The euro is the gold standard of today. Under the gold standard, companies and countries lent and borrowed huge sums across borders. Banks, believing the gold standard was immutable, financed all sorts of cross-border commerce. Thus America became Britain’s banker. Britain became Germany’s banker and France too lent huge sums to Germany.
Germany needed all these loans to grow more quickly than the rest of the world so it could payoff the reparations to France and Britain. The Americans always wanted to offer debt forgiveness to Germany, but the old allies disagreed. So Germany borrowed money and got into more debt to deal with a dilemma that was caused by too much debt/reparations in the first place.
We are building up the same reparation system in Europe now. Here, all of the banks’ debt is guaranteed indefinitely, courtesy of the EU bailout plan for countries in trouble. So too is Greece’s, Portugal’s and Spain’s.
The only beneficiaries of such lunacy are the banks who lent the money in the first place. As the EU has now stepped in to act as a backstop to anyone in trouble, there is surely no reason why our own bank guarantee should be extended beyond its end date of September 30.
The real problem is that it is quite clear that none of these countries will be able to grow within the straitjacket of fiscal tightening and the strong currency that is the euro.
One of the iron rules of monetary economics is that weak countries with strong currencies get weaker, not stronger.
This will happen to us – and all the others. Ultimately, like the gold standard, the countries will see that the euro is not a facilitator of recovery but an impediment.
It will be stitched together again and again until the European Central Bank not only becomes the lender of last resort, it becomes the lender of any resort.
Europe has a choice between sorting out its currency and banks or its economy and unemployment. Seems pretty clear, doesn’t it?
Hi David,
I think what you are saying we should do sounds correct,but i really can’t see this Government leaving the single currencie,can you?
However when the real crash comes due these massive bailouts and guarntee’s put in place, i am shure they will be trying to hoodwink us again saying no-one was telling them to leave the single currencie.
@Tim 23 previous article Re Morgan Kelly’s calculations posted in the IT. Note his overall position following these calculations is that we cannot afford the cost of the bank bailouts on top of our sovereign debt obligations. Also re the IMF landing in Dublin this week to make similar assessments of our ability to carry the debt load plus the cost of NAMA including its forward debt/return calcs, is this a preemptive prep to prepare for eventual default. I’m not an expert but as far as I can see, there are a number of calculations/parameters that relate our economic survival… Read more »
Great article from David, cheers and thanks!
Hi David, Its always interesting to look back into the past and to try and draw lessons. There are lessons in history as people/humans as a collective make mistakes, and repeatedly so! The mistakes are the symptoms though, as the cause can be standard human psyche, with traits such as greed taking us down again and again! DavidMcW> The euro is the gold standard of today. No, its not. The gold standard was a fixing of currency rates with gold as a reserve and the ability to convert paper money into gold. Paper was a handy way of representing gold,… Read more »
Europe has a choice between sorting out its currency and banks or its economy and unemployment. Seems pretty clear, doesn’t it? WHY NOT BOTH? David, fwiw, I fail to see that it would be impossible to sort out both at the same time. This notion of one or the other, but not both, I would disagree on that point. My reasoning is that this article is focussed mainly on Europe, leaving out ROW where in deed ROW has to be part of the solution. A few observations Somehow I do get the impression that the presence and role of the… Read more »
This is what David said :
‘One of the iron rules of monetary economics is that weak countries with strong currencies get weaker, not stronger.’
– This speaks louder than the words seem to say .If you want to survive in EU and have a job live in Germany or France that is where real growth will be in the long term.
Here’s Will Hutton’s take on the EU crisis.
http://www.guardian.co.uk/commentisfree/2010/may/30/will-hutton-germany-euro-crisis
I don’t know if civilization is going out like it did in 1914. What happened in 1914 destroyed the rest of the century in a cycle of war, bloodletting, etc… I heard it said once that, except a border war between Paraguay and Bolivia in the 1930s stemmed from some element of the 1914-1918 war. Civilization went out. In some regards it never fully recovered. Europe is trouble. There is the internal element. (the debt levels in the PIGIS). And there is the external issue, concerning the rising competitiveness of Asian manufacturing hubs like China, India and Vietnam, which are… Read more »
Looking forward to results of preliminary enquiries into the banks this week. Shane Ross, Ireland’s most experienced NED watcher had a humorous take on current Anglo director Maurice Keane(ex BOI) shuffling deck chairs on the titanic croneyism Sunday Indo Business yesterday. Also he made a good catch on noting one of the three NEDS appointed to Anglo last week was ‘Aidan Eames of Eames Solicitors, Dublin. It wasn’t released publicly that Eames very close to FF as an ex senator appointed by FF, also appointed by Dermot Ahearn to Bord Gais as a director and he’s an old friend of… Read more »
Excellent article David, placing the present situation in an historical context. Points made by MK1 are also helpful as usual. I’d agree with him that the Euro is not the gold standard of today. The closest approach to a gold standard are US treasury Bonds, UK Gilts and other countries’ Sovereign Government Bonds, backed by rating agencies’ AAA or otherwise reflecting perceived risk for each country (assuming perfect transparency). We tend to assume that Irish government bonds are backed by the taxpayer and that any consequent default will extend to perpetuity. But it ain’t necessarily so. The Irish state is… Read more »
Here’s my 2p on what needs to be done.
We need a debt renegotiation based on default and exit from the euro plus IMF (wouldn’t like this either) support option.
Our new currency should seek alignment with the dollar and we need to do the necessary fiscal adjustments to show the markets we have fixed the problems.
This will free the euro and free ourselves. Sometime in the future better conditions/regulations for closer economic alliance will take place.
This will be a change not without its pain but its a recipe for growth not stagnation/deterioration and death through debt
Where was America in WW1 – late arriver and main benificiary of the Allied victory. America still, in my opinion, holds the key to Ireland’s (and to a lesser extent Europe) recovery. A friend is currently visiting from LA (longer than she anticipated as she is back to renew her passport – some chance of that…). Where 12 months ago businesses were closing – they are now opening. There has been a pick up in the property market; and in general there is a mood of optimism that the worst is over. Confidence is the key to recovery – including… Read more »
“cleaned out my sprayer well enough from a previous mix of Round Up: Spuds dead….. Could there be an analagy here with the Irish Banks!”
Absolutely, The NEDS plus croneyism(‘Round Up’ of the banks for the property bubble)
NEDS plus croneyism(previous ‘Round Up’ plus NAMA Dithane) for bank rescue/ lol
LA, Silicon Valley, California etc…According to the Silicon Valley Index (2010) 1.3Millon employed – lost 90000 jobs during the dip between 2008 and 9. Venture capital shrunk from 8 to over 5 bn in the same period etc etc. Average wage is 75K USD and innovation / patents registered dropped only 1%. So the interesting takeaway is Innovation cost fell and loads of money does not mean loads of invention. India & China with South America and Europe has made the likes of Silicon valley a 7 x 24 hr innovation shop. The reason things are in bits right now… Read more »
Philip- I agree but your comparrison is selective and not all embracing of the greater productive social order and Ireland is bigger than silicon Valley .
The only thing that got Britain and the USA out of depression was WWII. We are going back to the gold standard…!!!
Josey – WAR = Kim Jong
David. We all live in a bi-partite system. The rich / insiders / crony networks control and operate the credit / money out of thin air ‘control switch’ in accordance with how much and how far they can get away with the cod without inducing a peasent revolution. Every now and then when the opportunity presents itself the operators , behind the levers of power, will game the system, inflate bubbles and make a killing and stash the winnings and play dumb when the coast is clear to do so. Why wouldn’t they, they are above the law and own… Read more »
Now Dr. Paddy Gurdgiev has thrown the cat amongst the pigeons ( or three jolly pigeons if you fancy a pint in Oliver Goldsmith Country outside Athlone ;-).)with an interesting observation on his blog on Sunday (linked below). Constantin the Contortionist has pointed out that with Irelands Private sector share of GNP falling below 47% then Ireland no longer qualifies as a Market Economy. HA HA HA HA HA . Oh man I’m busting by cajhonas at that one. Cowen and Harney the great free marketers, all the Austrian School Economists on this blog and elsewhere, and all the other… Read more »
[…] Europe back in the wars | David McWilliams […]
Posters.
The truth about NAMA…… its official.
http://irishindependent.newspaperdirect.com/epaper/viewer.aspx
I disagree we need anything like a €23bn reduction in gross annual primary spending by the state. Gurdgiev says: “The cuts must include at the very least a €9.3bn reduction in the wages and pensions bill in the public sector (5.9% of GNP or almost 44% cut in the total PS wages bill, achievable through both reductions in numbers employed and wages paid and pensions benefits entitlements).” In my opinion there is no scope for reduction in numbers employed. There could be some scope for a reduction in wages but only on the basis of an increase in numbers employed.… Read more »
I note that today, Lenny, the Minister for Economic Armageddon, has committed another 2 billion euros in funding to the Anglo black-hole cum millstone around around our (ie, outsiders’) collective neck:
http://www.rte.ie/news/2010/0531/anglo.html
I note that Lenny’s stated aim is to minimise the cost to the “taxpayer” (FFspeak for “insiders).
1. Demoralization
2. Destabilization
3. Crisis
4. Normalization
These steps have been followed by another Union. I believe we are at stage 3 in this process of destroying nations and sovereignty.
People open your eyes to whats going on it has been done before…
€2bn more paid into Anglo ……what a shame …….its amazing how we allow all this to happen without causing a resistance .
My prediction is that soon all home meat produced will be exported and none allowed for the home market because we wont be able to afford it unless kim kown keeps some for his elite and henchmen.
Did we not experience that in the famine?
I’m really confused. We spend €50bn/year, we take in €30bn in taxes. We’ve got a debt of €75bn, with €10s of bn more being pumped into banks. MNCs are doing better but there is zero growth in the domestic economy, so tax intake isn’t going to jump any time soon. 1) Why are we just reducing the budget deficit by €3bn? And where does the next €3bn come from in Dec 2011? 2) What makes Lenny so confident that we (+ our children) can pay all this money back? I really do wonder about the emperor’s choice of clothes… but… Read more »
So the IMF are in Dublin under radar searching the files and scrutinising the facts .Blood on the hands for those near them .I have no doubt that the mandarins are getting a good talking to and told where to go by these gestappo agents . Poker is the game that our mandarins will lose this time and their bluff and bluster will be transparent in all their sly moves.Cowards to all in the Dept of Finance.Freedom of Information should extend to the findings of these investigators so that the little people know what is fcuking wrong with this fcuking… Read more »
Today there is no such thing as Gold Standard only GOLD .
By the term Gold Standard we mean today a state of mind and what David means is that we measure that in Euros.So in fact our currency is really a ‘bareme’ or benchmark against which we make comparisons against other mediums of exchange.
In the present chaos clairvoyant mediums would be more appropriate.
wills – are the bondholders bearers? Invisible ,ghostly and ghoulish creatures?
@ John ALLEN 28 During the years 2000-10 the goms and their followers had become more powerful having gained access to billions of euro shovelled unchecked into their accounts by EU bondholders, puppet cash cow banks were now grown monstrous with what was stored in their pig’s bladders. It was the time of Kim Kown and the age of the Amish. Their ilk had spun out a home grown property bubble that yielded instant profits faraway beyond their dreams. The market was fed by active dragons fire breath by politico soothsayers promising great wealth to all. Goms under camIOUflage with… Read more »
This defies explanation.
http://www.independent.ie/national-news/fears-for-airport-jobs-as-staff-snub-switch-to-second-terminal-2201198.html
Terminal 2 has cost almost a billion. And now there will be nobody working in it, because the 32 K compensation is insufficient.
My mantra up to now has been all along is that Logic is dead now I have come to a realisation that Economics is dead .The only thing waking up is WAR.
And plenty of it.
Declan Lynch’s proposes a first step in sorting out the mess:
http://www.independent.ie/opinion/analysis/the-markets-and-their-reign-of-terror-2200416.html
Can we afford to keep making our farmers millionaires to facilitate the rest of the population with neccesary infrastructure? http://www.independent.ie/national-news/farmers-land-millions-for-road-2202039.html Forget your bankers and developers, this is the group who have raped the state the most and wreaked havoc on the rest of society by being the primary root cause of expensive property, never mind ripping consumers off at farmers markets and side of the road enterprises (Note: bring your own weighing scales in the boot of your car to save yourself €s as bags of spuds are sold below the weight displayed on the side of the road). The… Read more »
Posters.
Good info here on ANGLOS bondholders.
http://thestory.ie/2010/04/20/anglo-bondholders/
Hey Greeks, You know your economy is bunched when you are told to take advice from the clowns running ours….
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_gxU5nfACkg&pos=13
I did not we are in recovering. Did you ?
The only company that can be cited as evidence that things are improving is based away from the cliques in Straffan. Proof that the problem IS the predominant Irish concept of Management.
Posters.
The banks debts that the banks owe their lenders are been paid down by the taxpayer.
The loans the banks owe to international bondholders, the taxpayer is paying this debt on behalf of the bank s so the banks which are private companies can stay in business.
If this is not corporate fascism what is.
Think Outside of The Box : In these moments now three important events are happening that are significant : 1 Iceland has formed a new political party named : The Best Party . We should do the same; and 2 Sarkozy and Merkel are doing a swap namely surrender Trichet and appoint Webber .This may sway Germany to make love with France and do the Tango and leave us all on the ditch; and 3 Spain is beginning to DEFAULT .Do I need to say more .When that happens we will have many Lehmann Bros to cope with. The best… Read more »
A National Liability Waggon
http://www.independent.ie/opinion/analysis/nama-just-a-bailout-for-the-professional-classes-2203280.html