Double Demise

The United States and Europe are united in misfortune — just as they were in 1929.

Forty years ago, Eastern Europe expert Leo Labedz coined the term “competitive decadence,” which was picked up and advanced by his Parisian colleague Pierre Hassner. Which would be the first to collapse because of its “contradictions,” the U.S. or the USSR? The answer came in 1991, when the USSR committed suicide. It could no longer afford its empire.

Today, America and Europe are rehearsing their descent and not for the first time. The first decline began in 1929 and almost ended fatally for Europe. The crisis there spat out Hitler and, in America, Roosevelt. The New World was rescued from the Old, and democracy triumphed. The second decline, however, finds both sides united in misfortune. Both sides are incapable of helping either themselves or one another.

America, in one sense, has the advantage. Its share of the global economy has been around 27 percent for the last 40 years. In the meantime, Europe — surprise, surprise — has lost about nine percent. Otherwise, however, both suffer from the same disease: debt and lack of leadership. The people in all democracies have demanded more from their governments than their governments were capable of providing, but governments merrily went along with the demands (and grew magnificently in the process). Bottom line: a debt ratio approaching 100 percent of GDP, give or take a point or two. Governments everywhere are now incapable of dealing with what they and their people have started.

Why not? Because of the Otto Graf Lambsdorff principle which reads: We all must tighten our belts, and we’re going to start with yours. Everyone sees himself or herself as a victim, a sentiment expressed on a recent Occupy Wall Street poster reading, “I am very upset.” Who is at fault?

The simplest solution is to personalize the misery: Bankers, those financial acrobats — they certainly enriched themselves with the crisis. However, governments set the table for their feast: They printed cheap money for 30 years and generously doled out political favors. They caused the real estate bubbles in Spain and Ireland, while in America, they gave mortgages to people unable to pay them in the name of social justice. Home ownership for everybody. That’s the only reason the “finance capitalists” were able to gorge themselves, and that includes the German state banks, by the way. Governmental and market failures are fraternal twins, and their source is an otherwise wonderful system of democracy that favors the masses to the detriment of the individual.

Who will revive first? Theoretically, America will because their political system creates clear majorities unlike the European proportional system with its sluggish coalitions. Beyond that, large American firms have gotten rid of their debt and are sitting on billions in cash. But how did Hölderlin put it? “Where danger is, deliverance also grows.” That’s how the Greeks stumbled into a unity government: They will be first to put their national financial house in order. In Berlin, on the other hand, there’s already a unity government, at least as far as European politics is concerned. What Churchill said of the United States holds true for all democracies: They’ll do the right thing after they have exhausted all other possibilities.