Inverted repeat of Versailles

The eurozone crisis has continued to escalate and intensify during the recent months with various European governments facing increased financial difficulties. Within this situation, Angela Merkel is repeating history, not as tragedy or as farce, but simply as an inversion. This she does by her determined insistence on austerity conditions in exchange for bailout funds by the European Union and the International Monetary Fund. Austerity, in turn, is causing contraction of the recipients’ respective economies.

No historian would today question the fact that the financial conditions enforced by the Allies on Germany after World War I by the Treaty of Versailles exceeded even the proverbial pound of flesh. Reparation costs, in 1919 totalling some $31 billion, were expected to take over 60 years to be repaid. This put an enormous burden on the German economy, which led to its collapse. Then came German resentment, Hitler, violation of the treaty, German rearmament, Nazism, Gdansk and World War II. Germany lost again, with the Allies’ final encore acted, upon an apocalyptic scene, from the skies of Dresden.

This second time round, though, the victors were the wiser. They realised that the imposition of usurious conditions would only lead to renewed conflict in the long term. Dresden was not an omen of what was in store for the German people. Truly, Germany was divided but, instead of a Versailles repetition, West Germany was aided by the Marshall Plan.

Billions of dollars were invested by the USA in order to rebuild German industrial production. This investment in German skills gradually transformed West Germany from a state of default to a role model of a social market economy.

The success was built on a strong private sector subject to state regulation and intervention, a welfare system that ensured fair distribution of the wealth created, free universal health care, trade union industrial rights, provision of essential public services by the state and measures to keep unemployment to a minimum. The Allies thus created a vital trading partner and steered Germany into their political fold.

The Marshall Aid proved that Versailles had been a strategic and tactical blunder.

Today, in many European countries the components of this social market model sound like fairy tale narrative.

In Spain, 5,639,000 workers are unemployed, comprising 24.4 per cent of the labour force. Their number will increase as the Spanish economy will shrink by 2.7 per cent this year.

The Irish government, according to the International Monetary Fund, will default again by end 2013 unless assisted financially.

Italy is in recession and no solution seems at hand.

Very recently, the Dutch and Romanian governments were both toppled after trying to introduce austerity measures to balance their respective budgets.

Hungary is actually challenging Brussels’ authority of financial control. The French people have expressed a clear demand for a different Europe by ousting Nicolas Sarkozy and crowning François Hollande.

The Greeks are up in arms against the bailout conditions, which will cause the Greek economy to shrink by an additional 4.4 per cent this year according to official estimates. The agreement defining these conditions could have been titled the Versailles II Treaty.

All major European unions, gathered within the European Trade Union Confederation, in January declared their opposition to the present European Union financial policies, demanding investment to create economic growth and jobs instead of austerity and economic contraction.

On the other hand, Germany, today reunified, is Europe’s largest, most advanced and most stable economy. Had the Allies reimposed Versailles upon this country after World War II, such progress would have been too difficult to attain. Germany’s economic strength, obviously, proportions its political say in decisions taken by Brussels on economic matters concerning Europe.

So, practically speaking, Chancellor Merkel is the decisive voice behind the strategy to solve the crisis. As a result, the German government is getting more and more isolated because of its stand on the bailout conditions.

Versailles II will not resurrect fascism to anywhere near the levels of the last century. Democracy, albeit bourgeois, is too strongly ingrained within the popular psyche to permit anything of the sort. The contradiction that the euro crisis has created, though, is very active and volatile and will not rest until it is resolved. Indeed, the indicators point to an escalation of unrest.

In the countries where the crisis is at its deepest, poverty and luxury stand side by side. So do unemployment and demand for more production of goods; homelessness and unaffordable vacant housing; cuts in social services and unlimited subsidy to the banks that created the crisis through speculation. As a result, youths stand in rebellion, opposing the forces of law and order.

In the meantime, the drama of the euro crisis carries on. Stock markets drop in value. Spain and Italy face rising borrowing costs. Financial companies openly prepare themselves in case Greece exits the eurozone. Investors seek safer havens. Even the sterling is regarded as considerably safer.

The solution based on investment and a social market economy, which steered Germany ahead after World War II, is today being negated by Chancellor Merkel in relation to other nations. So battle lines continue to be drawn geographically between Germany and various other eurozone countries and also between social classes in Europe.

The eurozone drama is far from over.