Opinion: Europe’s next nightmare

The political consequences of the Eurozone crisis include increasing xenophobia and nationalism among politicians – Published on Al Jazeera (first on Project Syndicate ), by Dani Rodrik (author of The Globalization Paradox and professor of IPE at Harvard University), November 12, 2011.

… The nightmare scenario would also be a 1930s-style victory for political extremism. Fascism, Nazism, and communism were children of a backlash against globalisation that had been building since the end of the nineteenth century, feeding on the anxieties of groups that felt disenfranchised and threatened by expanding market forces and cosmopolitan elites.  

Free trade and the gold standard had required downplaying domestic priorities such as social reform, nation-building and cultural reassertion. Economic crisis and the failure of international cooperation undermined not only globalisation, but also the elites that upheld the existing order.

As my Harvard colleague Jeff Frieden has written, this paved the path for two distinct forms of extremism. Faced with the choice between equity and economic integration, communists chose radical social reform and economic self-sufficiency. Faced with the choice between national assertion and globalism, fascists, Nazis, and nationalists chose nation-building … //

… Less bad’ options:

Europe’s centrist politicians have committed themselves to a strategy of “more Europe” that is too rapid to ease local anxieties, yet not rapid enough to create a real Europe-wide political community. They have stuck for far too long to an intermediate path that is unstable and beset by tensions. By holding on to a vision of Europe that has proven unviable, Europe’s centrist elites are endangering the idea of a unified Europe itself.

Economically, the least bad option is to ensure that the inevitable defaults and departures from the eurozone are carried out in as orderly and coordinated a fashion as possible. Politically, too, a similar reality check is needed. What the current crisis demands is an explicit reorientation away from external financial obligations and austerity to domestic preoccupations and aspirations. Just as healthy domestic economies are the best guarantor of an open world economy, healthy domestic polities are the best guarantor of a stable international order.

The challenge is to develop a new political narrative emphasising national interests and values without overtones of nativism and xenophobia. If centrist elites do not prove themselves up to the task, those of the far right will gladly fill the vacuum, minus the moderation.

That is why outgoing Greek Prime Minister George Papandreou had the right idea with his aborted call for a referendum. That move was a belated attempt to recognise the primacy of domestic politics, even if investors viewed it, in the words of a Financial Times editor, as “playing with fire”. Scrapping the referendum simply postpones the day of reckoning and raises the ultimate costs to be paid by Greece’s new leadership.

Today, the question is no longer whether politics will become more populist and less internationalist; it is whether the consequences of that shift can be managed without turning ugly. In Europe’s politics, as in its economics, it seems there are no good options – only less bad ones. (full text).

Links:

Down with the Eurozone, on Project Syndicate, by Nouriel Roubini, November 11, 2011;

Obama and Asia’s Two Futures, on Project Syndicate, by Yuriko Koike, October 31, 2011.

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