By Business & Finance 
The servitude that is being visited on the struggling euro nations for a generation at least, will sow the decay of the whole of civilised Europe, as JM Keynes might have put it. Cormac Lucey reports.
John Maynard Keynes was the greatest economist of the 20th century. Not only was he extremely bright and economically gifted but he was an intellectually agile contributor to the key political and economic debates of his time. He was, like Morgan Kelly, a man of moral courage who was prepared to go against mainstream thinking. The irony in considering Keynes today is that his views are being ignored and his key intellectual message – that fiscal policy should be relaxed if private spending contracts – is being reversed.
His first major appearance on the political stage came in the wake of the Versailles Treaty of 1919. Keynes had played an advisory role at the post-first World War peace talks. Their outcome was dominated by France, which insisted that Germany be saddled with very heavy war reparation bills for having started the war. After all, large parts of France had been physically destroyed, a French generation had been decimated and France had been saddled with heavy war reparation bills when she lost the Franco-German war of 1870.
But Keynes was concerned that large reparation demands would be utterly counter-productive. So he wrote a pamphlet protesting at that Carthaginian peace. A key passage of that work bears close reading in light of what is now proposed for Greece:
“The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe.
Keynes, “The economic consequences of the peace”, 1919
The EU’s “debt restructuring plan”, by still leaving Greek government debt at elevated levels of 160% of national income, has the effect of reducing Greece “to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness.” Yet the European Union and, more culpably, the European Central Bank (which does not have to answer to voters) deny Greece the debt relief it so obviously requires. Instead Europe comforts itself with stories of Greek perfidy that purport to justify its own unjustifiable stance.
At least – unlike Germany in 1919 – Greece has not just lost a war, not just lost substantial territories and not just lost hundreds of thousands dead in an utterly wasteful war.
So it is unlikely that its unfair treatment will provoke a similar reaction to Germany’s unfair treatment after the first World War. But I strongly doubt that Greece will retain its political stability in the face of the servitude which the EU is now visiting upon it “for a generation”.
After all, in 1919, Keynes went on to warn his readers, “If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.”
After getting it so spectacularly right on the Versailles Treaty, Keynes didn’t have to wait long before getting it spectacularly right again. This time Keynes’s focus was on Winston Churchill’s insistence that Britain go back onto the gold standard at an exchange rate which, in the opinion of Keynes, was far too high. So Keynes wrote another pamphlet, this time with Churchill in his gun sights. A key passage of that work bears close reading:
“He [Churchill] was just asking for trouble. For he was committing himself to force down money-wages and all money-values, without any idea how it was to be done. Why did he do such a silly thing? Partly, perhaps, because he has no instinctive judgment to prevent him from making mistakes; partly because, lacking this instinctive judgment, he was deafened by the clamorous voices of conventional finance; and, most of all, because he was gravely misled by his experts.”
Keynes, “The economic consequences of Mr Churchill”, 1925
In a nutshell, this describes the position which Ireland’s “clamorous voices of conventional finance” prescribe for Ireland and the other financially-distressed euro zone states. We should stick with the euro even though it is asking for trouble in that, by doing so, we are committed “to force down money-wages and all money-values” at a time when we have extraordinarily high money debt levels.
Falling incomes + falling asset values + stupendous debt levels = bankruptcy.
Meanwhile “the clamorous voices of conventional finance” – the EU, the ECB, the IMF, the Irish Central Bank, the Department of Finance, the NTMA, the banks, the stockbrokers, Ibec, the ESRI, NUIG professors etc – urge us to stick with the programme. In that, they are utterly wrong.
Sadly, when they declare that Ireland is not Iceland, they are right. Ratings agency Fitch has just upgraded Iceland to investment grade BBB – with a stable outlook. The OECD’s latest forecast said the country’s growth will be 2.4% this year, after 2.9% in 2011. Meanwhile, unemployment is forecast to fall from 7.0% last year to 6.1% this year and then 5.3% in 2013. Ireland needs debt default and currency devaluation – it’s working a treat in Iceland.
