As Europe’s economic debacle gathers apace, there’s no shortage of commentators saying “I told you so.” The impact of factors such as out-of-control welfare states, excessive debt, widespread bureaucratization, a flawed monetary experiment, low-productivity, and labor market rigidities seems obvious to us today.
The truth, however, is that few observers — European or American — forecast that the European unification project would eventually produce a fiasco on this scale. Indeed, most early opponents of European political and economic integration were old-fashioned lefties who feared it might impede implementation of socialist policies!
A rare exception to this rule was the German economist Wilhelm Röpke. Today, he’s mainly known as a primary intellectual architect of the postwar German economic miracle as well as one of postwar Keynesianism’s most ferocious critics. However, not many know that Röpke was also one of the very few free market economists who loudly and publicly criticized what would eventually become today’s European Union even before the Treaty of Rome was signed in 1957. Röpke was in short a “euroskeptic” long before the term was coined.
Röpke’s brand of euroskepticism didn’t arise from concerns about national sovereignty, let alone nationalist sentiments. His experiences as a highly decorated soldier fighting in the Kaiser’s army on the Western front during World War I left him with a permanent distaste for nationalism and militarism, especially its fascist manifestations — so much so that he was one of the first professors whom the National Socialists dismissed from German universities after they took power in 1933. Moreover, as an economist who was extraordinarily well-read outside the confines of the dismal science, Röpke also knew that modern nation-states have not, historically speaking, always been liberty’s greatest friends.
Nevertheless, Röpke was highly censorious of the economic and political vision underlying most postwar European unification efforts. No amount of window-dressing, he said, could disguise their profoundly dirigiste inspiration and ambitions.
It’s striking just how much Röpke got right about the consequences of the present European integration model. In 1958, for instance, he predicted it would eventually pit a minority of relatively market-orientated European economies (particularly Germany) against a majority of strongly étatiste-inclined countries. Those nations that ran disciplined fiscal and monetary policies, Röpke argued, would eventually be pushed to “sacrifice” their rectitude “on the altar of Europe” in order to assist less-disciplined nations.
And that is, of course, the choice squarely facing Angela Merkel today. Germany is under enormous pressure from figures such as France’s new socialist president François Hollande — who, incidentally, has just lowered (!) France’s retirement-age for certain workers and raised (!!) its minimum-wage beyond the inflation-rate — to significantly compromise the very policies that have produced German economic success in order to save Club Med Europe from the results of years of fiscal frivolity. On the subject of a pan-European monetary system, Röpke insisted in a 1959 paper that it would only work if (1) all of its adherents adhered to disciplined fiscal policies and (2) mechanisms existed to expel any country that broke the rules. He strongly doubted, however, that such conditions would be met in a Europe in which generous welfare states were increasingly the norm, governments were proving adept at both fudging and ignoring rules, and politicians were regularly using the state’s power to tax, spend, and run deficits to attract different interest-groups’ electoral support. Once again, Röpke proved correct.
Röpke also forecast that the precursor to today’s European Union, the European Economic Community (EEC), would exacerbate the bureaucraticization that plagued much European economic life. Foreshadowing what would later be called public choice theory, Röpke noted that every single postwar creation of supra-European institutions had produced armies of civil servants with a strong self-interest in expanding their numbers and influence. Less than 6 years after the EEC’s creation, Röpke observed that its executive bodies had become “an enormous administrative machine” churning out thousands of growth-stifling regulations. Even worse, he added, the EEC’s various departments had already been captured by “socialists and ingrained interventionists.” Little, it seems, has changed.
Röpke was not content to be simply a naysayer about Europe. In fact, he favored European economic integration, but insisted it should proceed “from below” rather than from the “top down.” Integration would be most effectively realized, he suggested, by European nations unilaterally liberalizing their economies and opening up their markets to not just each other, but the rest of the world. That would, Röpke stated, negate any need for supra-European institutions to “manage” the integration process while simultaneously pursuing their own less-noble agendas.
Moreover, Röpke had an alternative model in mind: the European Free Trade Association (EFTA) founded in 1960 as an alternative to the EEC. Not only did EFTA focus on securing free trade between its members as well as non-European third parties; it also lacked a large bureaucracy and refrained from advancing social democratic programs. EFTA’s genius, Röpke argued, was that it embodied a free associative approach to integration which avoided the fallacy of seeking to impose policies from the top-down. EFTA thus respected its members’ freedom, but also underscored every member-state’s correlative responsibility to address their own domestic policy failures instead of trying to mooch off other European nations.
To be sure, Röpke had his own blind-spots about Europe. One was his alarmism about “overpopulation.” Demographically speaking, contemporary Europe’s problem is shrinkage and aging. This is the time-bomb that spells long-term doom for European welfare states.
Where Röpke proved correct was in envisaging that efforts to impose European political integration from the top-down would go hand-in-hand with attempts to replicate large welfare systems and extensive regulation across Europe. What’s now called “Social Europe,” Röpke maintained, was integral to the same dirigiste and rationalist mindset that viewed extensive planning by political-bureaucratic elites as infinitely superior to the workings of Adam Smith’s invisible hand within a legal framework of clear rules and limited government.
Röpke died in February 1966, decades before the present crisis that’s created a bleak economic future for an entire generation of young Europeans and turned the phrase “Greece” into a byword for dysfunctionality. Like many prophets, Röpke’s predictions about the long-term effects of choices made by European leaders in the 1950s and 1960s were mocked in his own time. But in the unlikely event of Europe’s political masters escaping the echo chamber that tells them that salvation can only be found in ever-greater centralization, those whose knowledge of history extends beyond the last 24 hour news cycle might be honest enough to admit that Röpke was right.
And the PIIGS might fly.