PARIS — The weekend elections in France and Greece seem widely to have been taken, at least on the European and American left, as a solution to the great European economic crisis.

The Greeks will hold another election, which a leftist coalition may (or may not) win. A masterful Francois Hollande will unveil his plan to tame Angela Merkel and the European Central Bank, and reinstall growth in Europe and terminate sacrifice through pan-European infrastructure building, just as soon as the June legislative elections are over and Socialism rules, while Marine Le Pen — as planned — dominates the scattered and demoralized remnants of the French center and moderate right.

“Time is clearly running out for the strategy of recovery through austerity,” Paul Krugman of The New York Times writes. He has won his argument against austerity, in France at least, and would that this were so everywhere. But there still are Germany and Merkel to confront, and the 25 other European Union countries already signed up for austerity and still more of it. Moreover, the French were not reading Krugman when they voted; they were not voting on economic theory but voting their anger at Nicolas Sarkozy, and their nostalgia for the good old days before Wall Street greed, folly and malfeasance wrecked the world economy.

In Europe, the effect is much like that in 2005, when France and the Netherlands voted against the proposed European constitution that the EU majority had believed that Europe needed, and had commissioned Valery Giscard d’Estaing to draft for them. Then, as now, the rule was unanimity, and the EU Commission and Council were appalled to have the constitution rejected by Giscard’s own French compatriots and by the Dutch, founding members of the EU.

What to do now? Then, as now, the crisis was surmounted and the problem was recognized as one in which the ideology of European unification had overreached political good sense and been rejected.

The same generous and ambitious error of overreaching is also at the root of what now has happened in Europe. The alluring idea of a common currency, cementing the economic progress made with the European Common Market, darkened the prudential imagination of Europe’s leaders, and produced the euro — Europe’s common currency (with aesthetically wretched bills by comparison with most of the European currencies it replaced!).

The common currency lacked the three elements that could support it: commonly managed European economies, budgets and fiscal policies (and to add a fourth absent quality, a sensitivity to history, which would have told them that previous European monetary unions, of which there have been several more limited ones, have failed for lack of those elements).

The advantages of the euro have been enormous, banishing currency speculation and saving trillions to the banks and financial institutions of Western Europe and those who deal with Europe. But the common currency has robbed Europe’s weaker economies of the flexibility that their own monies gave them. If Greece, Spain and Italy had been able to adjust the values of their currencies against the major ones, the dollar, deutsche mark, Swiss and French francs, all would have been well. Those countries would have retained their export competitively and indeed might have gained against the dollar, weakened by American deficits, despite that printing machine in the Treasury’s basement.

Germany would have saved its D-mark, which psychologically speaking, is what all of this has been about in Germany — no repetition of the Great Inflation of the 1920s! The deutsche mark, if it had not been replaced by the euro, would dominate Europe’s monies today, and Germany’s manufacturers would still have prospered, but not as much as they actually have done recently, since the Europeans (and others) buying German goods would have been paying in francs, lira and pesetas, which, like sterling and the dollar, would have fallen in value since the great credit crisis began. But these customers would nonetheless have been buying because they could afford to do so.

(An incidental remark: Is it not possible that some savant could invent — or reinvent — a system for the eurozone where a constant euro would nominally exist as an accounting unit against which individual currencies in the zone could float? Wasn’t the “snake” and ecu system something like this?)

Returning to the United States, whence the Great Credit Crisis came, the current debate is ideological, to be sure — neo-Keynesian (Krugmanism, shall we say) versus monetarism and the theory, born in the Austro-American academy, of a market economy in which an Invisible Hand corrects economic errors, with dispassionate indifference to the crooked stuff of which humanity is reputedly made, even capitalist humanity. In this perspective, Republicans say it needs only to fix certain structural problems that have unaccountably arisen in the globalized economy, the inconveniences of which the poor and middle classes will have to put up with (after all, we are doing it for them, aren’t we?).

The answer to the crisis is to cut spending on schools, health, welfare programs (American tea partyers would add, “for people who don’t deserve them and whine about it”), while properly rewarding the business executives who have made our nation great. The Germans have been attacking a real problem of profligacy in certain euro economies. They haven’t made it work, but it’s not crank theory.

Visit William Pfaff’s website for more on his latest book, “The Irony of Manifest Destiny: The Tragedy of America’s Foreign Policy” (Walker & Co., $25), at

© 2012 Tribune Media Services, Inc.


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