Looking On The Bright Side

Josef Joffe: The Myth of America’s Decline - Politics, Economics, and a Half Century of False Prophecies

National Review, November 26, 2013 (December 16, 2013 Issue)

Statue of Liberty, June 2009 © Andrew Stuttaford

There is usually a moment in the course of a typical English picnic of drizzle, hard-boiled eggs, and chill, when someone looks up at the gray, unyielding sky and brightly announces that the weather is “clearing up.” If Josef Joffe attends English picnics, he would be that someone.

In this cheery take on America’s prospects, Joffe, the editor of Die Zeit, looks around and ahead and decides that, for all its problems, the U.S. will do just fine. He reminds us that pundits and politicians have been awaiting the end of America since its beginning. In itself, of course, this proves nothing: Time passes, facts change; what once was set in stone ends up slithering on sand. Joffe takes care to say that the failure to come true of previous prophecies of America’s decline “does not mean that [one] never will,” but, given the broader themes of this book, those words — and a handful of others like them — are the equivalent of the quick-fire muttering that accompanies some car commercials, caveats that no one is meant to notice.

Joffe, a shrewd and subtle analyst, is on firmer ground when he turns his attention to the nature, origins, and history of “declinism.” Predictions of an American tumble, he argues, frequently owe more to the dreams, fears, or ambitions of those who made them than to any reasonable calculation of what the future might hold. There have always been those, abroad, who have taken comfort in the thought that this over-mighty giant — and dangerous inspiration — might be faltering. Here at home, however, prophecies of doom are often intended to be self-defeating, designed to change behavior — enough already with the twerking, enough already with the neglect of missile defense — that would otherwise lead to catastrophe.

And declinism is a powerful political tool (fear sells) that has long been used and abused. Joffe relates how insurgent presidential candidates have a habit of basing their campaigns on existential threats that have a way of disappearing by the time, four years later, that the insurgent-turned-incumbent, “first Jeremiah, now redeemer,” is seeking reelection by a country where it is, again, morning. This record of apocalyptic bunkum does not mean that every politician’s prediction of approaching Armageddon can safely be ignored, but skepticism is generally a better response than panic.

Next, Joffe asks if there is any country in a position to topple America from its “towering perch,” a perch that is, he shows, far loftier than widely imagined. By contrast, Britain, even at its imperial peak, was merely first among some fairly grand equals. Joffe again buttresses his argument with the wreckage of earlier predictions — that Japan would overtake America, that Europe (Europe!) would fly by, that the Soviets would bury us — before turning a bracingly cold eye on China. The starting point of his enjoyably iconoclastic take on this latest contender is a blend of math and history — “as the baseline goes higher, as economies mature, growth slows” — but it quickly evolves into a perceptive critique of authoritarian modernization (and particularly its Chinese variant) that would make Thomas Friedman very unhappy indeed. Imagining a Chinese Sorpasso any time soon is, maintains Joffe, an extrapolation too far.

What is true of the economic contest is, broadly, true of the military race too. Joffe acknowledges, as he must in the wake of 9/11, “the power of the weak,” but concludes — too sanguine, perhaps, about the equalizing effects of technology — that America is so far ahead of its rivals “that it plays in a league of its own,” and it does so more cannily (“on top, not in control”) and, if not exactly on the cheap, more frugally (amazing, but true, despite those famous Pentagon toilet seats) than the alpha nations that preceded it. America may one day abdicate (Joffe highlights Obama’s combination of “reticence” abroad with “nation-building” at home), but it is unlikely to be imperial overstretch that brings it down.

A drawback of Joffe’s focus on the competition is that it allows relative strength to obscure absolute decay, an error avoided by Alan Simpson when the former senator compared the fiscal condition of the U.S. with that of some European nations. America was, he said, the “healthiest horse in the glue factory,” an ugly truth not inconsistent with the broader observation by Joffe (who, we should note, also frets about deficits) that “only the United States can bring down the United States.”

But an even more profound menace to this country’s future may come from a transformation that owes little to foreign plotting or domestic excess and quite a bit to free trade, free enterprise, and technological progress, features — rightly applauded by Joffe — of the American system that have done so much to make the country what it is today. That America’s generosity and optimism, in the form of an immigration policy — nuttily cheered on by a Joffe still in thrall to ancient Ellis Island myth — may make things even worse only sharpens the irony still further.

The exceptional nation has undeniably been exceptionally successful. Yes, America is an idea and a dream and all that, but above all, it has worked. As Joffe recounts, there have been busts, panics, and slumps, but overall this has truly been a land of opportunity. The result has been a nation held together in no small part by the shared belief that a better life is there for the taking by those who work hard, a belief fed by the fact that it was true enough for enough people for enough of the time, a belief that may now be becoming a delusion.

Inflation-adjusted household median income has yet to return to its 1999 peak — 14 years ago, in case anyone is counting — and now stands at only a fraction more than the level a decade before that, a stagnation that cannot (despite some wishful thinking to the contrary) be explained away by changes in household size. It is no coincidence that the percentage of Americans in work also peaked around the turn of the century, before going into a decline that the Great Recession has only intensified: Work-force participation is back to levels last seen in the disco era, a regression with ominous ramifications for the sustainability of Social Security, Medicare, and all the rest.

The tentative nature of the current recovery, and its particular shape — hiring at the top and bottom of the wage scale has picked up, in the middle not so much — looks a lot like yet more evidence that happy days will not be here again for the American middle class anytime soon. Its labor is simply not as valuable as it was. As technology gets ever smarter, and as workers in lower-cost emerging markets upgrade their skills, opportunities will narrow in the office suite as well as on the factory floor, squeezing cleverer, well-educated Americans of a type who have only rarely been squeezed before. And they won’t like it one bit.

In his fascinating and, in its implications, terrifying new book, Average Is Over, economist Tyler Cowen surveys this scene and predicts the arrival of a “hyper-meritocracy” in which a comparatively small segment (maybe 10 to 15 percent) of the population does extremely well, most people eke their way along, and there are few in the middle: a vision that may be exaggerated, but not by enough to save what’s left of Bedford Falls.

Unlike many apocalypticians, Cowen has room for a little relief (of sorts). He accepts that there will be “some outbursts of trouble” but anticipates a future that is “downright orderly.” The country will be older, and shared pride in America’s leading position in the world (Joffe would not disagree) will throw additional social cement into the mix, while “cheap fun” distracts the potentially restless.

“Revolts,” writes Joffe, “are the hardest part of the soothsaying business.” I’m not so sure. Smashed expectations, a large cohort of well-educated (and often young) underemployed, high numbers of unemployed men looking for work in factories that no longer exist, ethnic and cultural fragmentation (the last apparently not a concern to Joffe or Cowen, immigration enthusiasts both), and the window that the Internet provides into the lives of the rich are a recipe for disorder that it will take more than Grand Theft Auto to head off.

And the increasing emphasis on growing inequality (the inequality is real enough, but it is a symptom, not a cause, of middle-class woes) in today’s political debate — from Occupy to Obama — is characteristic of a society in which the focus has shifted away from growing the pie to slicing it up. That’s a harbinger of a crisis within the American model, and, I suspect, an early taste of an Argentinian future to come.

Joffe dismisses a mid-’90s prediction of a coming automated dystopia as “a stew of Malthus and Marx.” He would be unlikely to be much kinder about Cowen’s Skynet lite. That’s a mistake. The clouds aren’t clearing. They are getting darker.

Landscape After

Marci Shore: The Taste of Ashes - The Afterlife of Totalitarianism in Eastern Europe

National Review, April 3, 2013 (April 22, 2013 Issue)

Warsaw, Poland, May 1998 ©  Andrew Stuttaford

The new dawn that broke over Eastern Europe in 1989 was bright, but the landscape it illuminated was exhausted, a territory of shadows and regret, where hope was jostled by apprehension and old demons stirred. To read some of the accounts of that time and that place is to confront sadness unexpected after the jubilation on the Wall, the Hungarian border, or Wenceslas Square — a melancholy echoed in Marci Shore’s beautifully written, discursive, and by her own admission “deeply subjective” new memoir, a work of well-told history and perceptive reporting that is both less than its title promises and rather more. Either way, it could have done with an index.

Don’t read The Taste of Ashes expecting a survey that covers all of the old Eastern Europe. With the exception of Romania (does that count?), the Balkans do not really feature, nor do Hungary and the former East Germany. There’s a brief excursion to Lithuania, but the other Baltics and the rest of the Soviet far west are notable only by their omission. This is a volume centered on Poland, the Czech Republic, and Slovakia, but quite a bit of what Shore discovered there could easily have been found elsewhere in the region. Thus, in early 1995, she returns to Prague and visits the house of an apolitical elderly couple, all too typical of a generation throughout Eastern Europe whose lives had been impoverished by Communism, but ruined by its fall:

The Velvet Revolution had brought freedoms they had no use for, and in any case had not the money to enjoy. Their whole adult lives they had worked under the Communist regime, and that regime had promised they would be cared for in their old age. Now the social contract had been broken. For their generation the revolution had come too late. For Pan Prokop and Paní Prokopová, it would have been better had it not come at all.

That, of course, assumes that — had it survived — the crumbling economy of Communist Czechoslovakia would have been in a position to deliver on those undertakings, something that is by no means certain.

Shore is an associate professor of history at Yale, a Generation X intellectual of somewhat progressive hue. Thus it may not be surprising that her description of her time in the Eastern Europe of the “post-Communist moment” — doubtless further skewed, in a form of confirmation bias, by the views and experiences of those with whom she chose to associate — comes with a sigh of disappointment. History failed again. The rise of the philosopher king, Vaclav Havel, was not accompanied by the rise of a philosopher people.

There’s prim tut-tutting about the profusion of pornography, and, more justifiably, about the increase in crime and the persistence of the inertia, passivity, and conformity of the “realm of the not possible” that was so much of the Communist state. There is little about the revival in free enterprise, but plenty on the resurgence in national tensions. Shore spent time “working as an intern for an ethnic-conflict project at an American-funded research institute.” Ex-Yugoslavia was in flames, and other long-suppressed conflicts had reemerged into the space that Moscow had once policed. In Romania, Shore investigated tensions between ethnic Hungarians and ethnic Romanians. Fair enough, interesting enough, but all this risks giving an unbalanced impression of a region where most just wanted their lives to be “normal,” an adjective that Shore happens to hear used by a Romanian politician, but that was voiced often in Eastern Europe in those days. When the old regimes fell, achieving a “normality” defined in largely Western terms was a widespread objective.

This idea is reflected in a clever phrase deployed by Shore to describe 1989’s upheavals: “Time, seemingly halted for so long, suddenly leaped forward.” And if the results of the leap have been uneven, they have still been impressive: “To tens of millions of East Europeans the end of Communism brought countless good things — above all a freedom the vast majority of people never imagined that they would live long enough to see.”

But in one sense, time did count, and it counted very much. Shore trains her historian’s eye on the impact of the Communist years, with a keen focus on the telling detail and defining atrocity. And she takes a longer view than most. The rise of the red flag over what her husband, Yale professor Timothy Snyder, dubbed the “bloodlands” in his magisterial book of the same name cannot, she correctly stresses, be seen in isolation. The subtitle of Shore’s book refers not just to Communism but to totalitarianism. In her view, the different stages in the evolution of Eastern European Communism must be read as links in a chain that stretches back to World War II, Nazi occupation, and the Holocaust and, before that, to the Depression, the rise of Fascism, and even to “the dizzying possibilities of the 1920s.”

It is widely recognized that war and Nazi misrule were critical in clearing a political, military, and (perversely) moral space for Eastern European Stalinism, and the link between the war and the troubled decade that preceded it is hardly a secret. The connection to the “unhinging” 1920s is more novel. Shore uses the microcosm of a group of 20th-century Polish poets as a window into the revolutionary fervor that enveloped large sections of the European intelligentsia in a decade happier, luckier Americans remember for jazz and Al Jolson.

Those poets — many of them of Jewish descent — dominated her book Caviar and Ashes and crop up again in The Taste of Ashes. From the later 1920s onward, they exchanged the (to them) ultimately unbearable uncertainties of nihilism for the messianic determinism of the far left, a faith that they — and a number of their associates — were eventually, and crucially, to put at the disposal of Stalin’s Poland. That’s a timetable that suggests to me that the original sin from which the nightmares Shore describes were to flow was the Bolshevik Revolution of 1917. After all, it was Lenin’s blood-soaked millennial upheaval that frightened many into Fascism as a supposed last bulwark of civilization. And it was Lenin’s revolution that drove its followers worldwide into a Communist cult that became dangerously intertwined with Stalinism years before the alibi that was Auschwitz.

To attribute so much of the blame to Lenin fits awkwardly with the emphasis that Shore’s narrative places on Hitler. The Holocaust is justifiably central to our reading of Eastern Europe’s dark 20th century, but its role as Stalin’s enabler needs more nuance than Shore gives it. Equally, notwithstanding the pantomime anti-Semitism (a gargoyle hounding of phantoms) that still, shamefully, persists in these lands, the horrors of the Shoah are less critical — other than for the hideous absence that it left behind — to our understanding of the region today than Shore appears to suggest. In a book billed as wide-roaming, she devotes perhaps too much space to what is now, tragically, only a tiny, introspective, often conflicted minority of Polish Jews. A minority of a once slightly larger minority (the Communists arranged a final anti-Semitic purge in 1968), they stay put in a country that groups of visiting Jewish teenagers — there to mourn at the death camps — regard (Shore recalls) “as a cemetery.”

Theirs is a disturbing, compelling story, but it crowds out a broader discussion of the encounter with a Communist past in which so many Eastern Europeans were profoundly compromised and then, “in a world where all the rules had changed,” left exposed by the opening of files that were either devastatingly ambiguous or, worse, all too clear.

There could have been more too in this book on the appeal of totalizing ideology to so many intellectuals. It is a topic that obviously interests Shore (it surfaced in Caviar and Ashes), but she gives too little attention to a phenomenon that still endures, if more benignly, even in the attitude of those such as the former dissident and Velvet Revolutionary who opts out of the, yes, normal politics of the new era: “To be engaged” is, in his view, “to forgo clean hands,” an abdication that is itself a declaration of absolutist thinking. Shore notes that “dissidence . . . had often been born of communism”: Once a believer, always a believer — all that changes is in what. That dangerous thrill remains.

Shore concludes the book with a tale of meeting a “bright young” member of the Polish new Left, who thanks her for Caviar and Ashes — a work he regards as rehabilitating those Marxist intellectuals of seven decades ago. Shore contradicts him, explaining that their fate is a “tragedy.” “But I didn’t read it as a tragedy!” says the bright young man. “I read it as a romance.”

We have been warned.

Cyprus Sinking

National Review, April 3, 2013 (April 22, 2013 issue)

It says something about the lunatic calculus of Europe’s monetary union that the Republic of Cyprus, a slice of a Mediterranean rock known mainly, if not always fairly, for sunshine, no-questions-asked banking for murky Russian money, and a history of ethnic conflict, has shared a currency with Germany for the past five years. And it says perhaps even more that in 2010 and mid-2011 its two largest banks passed EU-wide “stress tests” that, revealingly and not so revealingly, hugely downplayed the risks that banks were running with their holdings of government bonds. And, yes, those two Cypriot banks had a lot of government bonds — Greek-government bonds — and a great deal of other business in the hard-pressed Hellenic Republic besides. Wait, there’s more: Together those two banks in 2011 had assets equivalent to over four times Cyprus’s GDP. Overall the country’s banking sector had assets that amounted to more than eight times GDP. What cannot go on, won’t. By the second half of 2011, Cyprus was in the grip of a growing financial crunch.

After securing an emergency loan of € 2.5 billion from Russia, Cyprus’s former AKEL government (“Communists,” but not really) turned belatedly, in June 2012, for help to the bailout-hardened troika of the European Commission, European Central Bank, and IMF. Negotiations dragged. It took the election of the new center-right president, Nicos Anastasiades, in February finally to break the logjam. Anastasiades had a clear mandate to agree to structural and budgetary reforms of the type that the troika was looking for, but he balked at demands that depositors with Cyprus’s banks share in the pain. The longer-term consequences for Cyprus’s banking sector, a mainstay of his nation’s economy, would, he knew, be disastrous.

That was not something that worried Angela Merkel. She was said to have said that Cyprus “must realize its current business model is dead.” Helping out the banks in an offshore tax haven was never a proposition likely to appeal greatly either to the chancellor herself — no friend of international finance at the best of times — or to German voters. They are due to go to the polls in September. After years of bailouts that they never liked and that were designed to rescue a currency that they never wanted, there was an obvious danger that coming too generously to the aid of an oligarchs’ playground would be a handout too far. And so Germany played a major role in insisting that any bailout be accompanied by a “bail-in” that would shift a good part of the cost of a rescue onto depositors with Cyprus’s banks.

The Cypriots caved. The euro-zone nations and the IMF would together provide € 10 billion in new loans, but depositors in Cyprus’s banks would have to chip in too, a grim first in the grim history of the euro-zone bailouts. Deposits of over € 100,000 would be subject to a one-off tax of 9.9 percent. Then came an additional, dangerous twist. Depositors with less than € 100,000 would also be taxed — in their case, at 6.75 percent, a levy that made nonsense of the understanding that, within the EU, such smaller deposits are meant to be insured. That breach of faith could easily be seen as an unsettling precedent, especially elsewhere in the euro zone’s troubled periphery.

The Cypriot leadership probably chose to penalize the smaller fry in this manner because they worried that taking too much from the high rollers risked damaging what was left of Cyprus’s offshore-banking business, but it created such an uproar — on the island and beyond — that its overwhelming rejection by the Cypriot parliament a few days later came as a surprise to no one.

It was back to the drawing board. What emerged on the second go-round a few days later was structured somewhat more sensibly. Bank deposits of less than €100,000 are protected, but Cyprus’s second-biggest bank, Laiki, will be restructured out of existence, quite possibly wiping out all uninsured deposits on the way. Its larger rival, the Bank of Cyprus, has been rescued, but this will come as cold comfort to its major depositors, who are likely to end up taking a shellacking so brutal that there will be little to choose between their fate and that of their counterparts at Laiki.

The good news was that this kept the troika committed to the €10 billion loan. That would, said Anastasiades, be enough to stave off bankruptcy. More modest than most euro-zone politicians, he did not claim that his particular chapter of the currency union’s interminable crisis was over, merely that it had been “contained,” an idea echoed by the fact that draconian “temporary” controls on the movement of money out of the country have been put in place. Even so, the president was being too optimistic. The banking sector is shrinking rapidly. Many other businesses have been badly damaged by the calamities of recent weeks and are now facing the prospect of operating in a near-siege economy — conditions that are, in addition, unlikely to attract the foreign investment that Cyprus will now desperately need. Making matters worse still, money will leak out, despite the controls. GDP will contract sharply, perhaps by as much as 20 percent over the next couple of years. Unemployment will soar.

With the economy in free fall and government debt-to-GDP set to rise to some 140 percent after the bailout, it will take a miracle for Cyprus to avoid a return to the begging bowl — a miracle so far-fetched that even Cyprus’s most senior cleric, Archbishop Chrysostomos II, cannot believe in it. The influential archbishop, admittedly long a strong nationalist, is urging abandonment of the euro, which would trigger the nation’s outright default. That won’t happen for now. Anastasiades has pledged to stick with the single currency. A majority of his fellow citizens are probably behind him in that, at least for the moment, for reasons that are easy to guess. A reversion to the Cypriot pound would mean a devaluation that would wipe out much of what’s left of the republic’s shredded savings, threaten massive inflation, and further disrupt an economy that has already lost its bearings. But the argument is not all one way: There’s a decent case to be made that an eventual exit from the single currency would, for all the pain, be the best possible way of repricing Cyprus back into the global economy. This is a debate that is far from closed.

In any event, the most intense phase of the Cypriot storm appears to have subsided for now, but it has left the euro zone even more battered than before. The two most dangerous threats to the survival of the currency union in its current form are a massive bank run and voter revolt. The disaster in Nicosia has made both more likely.

Let’s start with the banks. Depositors throughout the currency union have now been given a sharp lesson. Deposits above € 100,000 are riskier than they had previously assumed, a message reinforced by a series of comments from various euro-zone leaders who in the wake of the Cyprus deal, despite some hemming and hawing, made it clear that a new template is being put in place. Large depositors, bondholders, and other sources of wholesale money to a euro-zone bank are being warned that they should expect to take a hit if that bank runs into trouble. Properly tweaked, that’s a good principle — moral hazard and all that — but, with confidence in the euro zone and its often undercapitalized banks still shaky, now was not the moment to assert it. That was especially so in a week that had seen the introduction of strict controls on the free movement of capital — supposedly temporary (time will tell; precedents are not encouraging) — within a currency union that had allegedly consigned such restrictions to history.

This will mean that banks seen as vulnerable (or banks located in countries seen as vulnerable) will find it even more difficult — and more expensive — to attract funds. (Well, would you deposit more than € 100,000 with an Italian bank?) This is a perception that feeds upon itself, and, in the right wrong circumstances, can easily set the stage for panic. Even those with (supposedly insured) deposits below € 100,000 will have been left uneasy by those few days in which it appeared that the euro zone’s leadership was prepared to go along with a deal in which smaller depositors took a hit. Since then, there have been repeated reassurances that such deposits are safe. Protesting too much? Just maybe, and there’s no getting away from one uncomfortable truth: Those insured deposits are guaranteed at the national level, not by the euro zone as a whole. A guarantee is only as good as the guarantor. Insured depositors in Greece have, therefore, to hope that, in the event of a crisis, the Hellenic Republic is good for the money, or at least for a third bailout.

One possible, partial response to that part of the problem would be to institute a deposit-insurance scheme jointly guaranteed by all euro-zone members, but that would risk inflaming the source of the second great threat now stirring within the euro zone: democratic politics. One reason that deposit insurance has not expanded beyond national borders is the suspicion, most notably in Germany, that signing up for a broader European scheme would be signing yet another blank check, something that would be not only bad housekeeping but a quick way to antagonize the voters. The bailouts have long been unpopular among the electorate in the euro zone’s (reasonably) solvent north, but the eurofundamentalism of most of its political class has meant that, despite some heroic efforts in Finland, this sentiment has done little to derail the trainloads of cash and commitments heading toward the currency union’s embattled periphery.

That’s not to claim that relatively frugal sorts such as Chancellor Merkel have enjoyed making the handouts. They have not. The tough line that they are taking on Cyprus and, by extension, on banks throughout the euro zone is clearly intended to show that there are limits to their generosity with their taxpayers’ money and to the risks that they are prepared to take with their voters’ patience. In a recent poll, some 26 percent of German voters said they “could imagine” voting for a party that was opposed to the single currency. In late February, a new, achingly moderate center-right party, Alternative für Deutschland, was formed to appeal to just such voters. AfD won’t win, but if it takes even a few percentage points in September’s vote, it could make the election rather closer than Mrs. Merkel would like. She won’t want to give AfD any more ammunition than she has to over the next few months, which is just another reason to think that the next bailout drama (keep an eye on Slovenia) may be even uglier than the last: Bank depositors in the euro zone’s other struggling regions will, doubtless, be watching carefully — and anxiously.

But while politicians in the euro zone’s north have to contend, for the most part, only with the threat of voter revolt, those in the periphery have to contemplate dealing with far tougher opposition. If parliamentary approval for the final memorandum of understanding that seals the deal is required, there may be some sweaty interludes in Cyprus (the parliament’s speaker has already signaled his opposition), but the best guess must be that Cypriots are likely to be too traumatized to do anything but go along with the terms of their rescue for now. But the spectacle of their pauperization will not play well with their kin in Greece, already radicalized by years of slump and increasingly hostile to the idea of sticking with the painful austerity that many of them regard (not always completely incorrectly) as self-defeating. That austerity is the price of continued support from the north, not least because, without it, voters in Finland and elsewhere would likely finally say that they had had enough. Rock, meet hard place. For now the somewhat unwieldy Greek coalition government is sticking to the troika’s script, but its leaders can read the opinion polls — and their message of growing anger — as well as anyone else. Meanwhile, in Italy the success of Beppe Grillo’s insurgent (and anti-austerity) Five Star Movement (M5S) in the February elections has led to political paralysis. At this writing, there is still no government in Rome, and the prospect of new elections cannot be ruled out. M5S continues to ride high in the polls. The humiliation of Cyprus will be unlikely to have hurt its case. Meanwhile, Silvio Berlusconi’s PDL, itself deeply skeptical of the troika’s agenda, is also polling well. In the aftermath of the Cypriot deal, Italian bond yields rose, and Italian bank shares fell.

To repeat myself, if you had a deposit in an Italian bank, what would you do?

Tick tock.

Estonian Economics

National Review, September 27, 2012 (October 15, 2012 issue) 

Raekoja Plats, Tallinn, August 2012 © Andrew Stuttaford

Tallinn, Estonia – Sitting shirt-sleeved and without, sadly, his trademark bow tie, in his official residence here in the Estonian capital, this Baltic nation’s Swedish-born, New Jersey–raised president, Toomas Hendrik Ilves, looks pained. He’s chewing antacid pills (I’d guess), but it’s the name that I just mentioned that is the problem, not indigestion: “Krugman.”

He sighs.

“I know this has been done to death,” I admit.

Ilves does not disagree.

Estonia has a tragic history of being a battleground for other people’s wars. Thankfully, the latest conflict into which the country has found itself unwillingly drawn — the debate over how the West can emerge from its post-Lehman malaise — has involved nothing more than a “snide” (to borrow Ilves’s adjective) bit of blogging by Paul Krugman for theNew York Times. And even that, the president concedes, ultimately turned out to be “good publicity” for a tale of economic recovery.

In 2008, Estonia’s boom, fueled to overheating by (primarily Scandinavian) banks attracted by the country’s post-Soviet revival, turned, like so many others, into bust. GDP fell by 3.7 percent in 2008 and by 14.3 percent in 2009, taking tax revenues with it: The budget went into a deficit of 2.7 percent in 2008, shocking in a country that aims to run a structural surplus. Unemployment soared to 16.9 percent in 2010, from 4.7 percent in 2007. Housing prices crashed 40 to 50 percent from their peak.

In response, the country’s governing coalition of conservatives and classical liberals cut spending and raised taxes (Estonia’s flat-rate income tax was, however, left untouched at 21 percent) in a squeeze equivalent to over 9 percent of GDP. But it was what happened next that must have really bothered Krugman: After pain came gain. GDP jumped 7.6 percent in 2011, and should grow by 2 to 3 percent this year and next. Unemployment has dropped to 10.2 percent and seems set to fall farther.

That did not fit comfortably with the sometimes-cartoonish Keynesianism that the professor has been pushing since the era of hope, change, and stimulus. So he took to his blog, cropped a graph, and took aim at “the poster child for austerity defenders” — not a role that the Estonians had sought for themselves. There had, wrote Krugman, been a “depression-level slump” (true enough) “followed by a significant but still incomplete recovery. . . . This is what passes for economic triumph?”

Well, no, but that is not what the Estonians, a modest bunch, are claiming. No one I talked to described times as easy, but progress is progress. What’s more, if you push the graph back a touch earlier than 2007, which Krugman used as his starting date, the broader picture is revealed to be rather prettier than the Nobel laureate let on. Yes, it was true that GDP had yet to return to 2007 levels, but it still stood slightly higher than in 2006, no plague year. President of one of Europe’s tech-savviest countries, an irritated Ilves turned to Twitter to rough up the “smug, overbearing & patronizing” Krugman.

Let’s take a step back: Estonia is not Greece. Government is transparent and thrifty. Taxes are paid. Private borrowing ballooned during the bubble years, but that of the public sector did not. At the end of 2008, the state’s debt stood at a sober 4.5 percent of GDP, a figure that might have tempted some governments to try to splurge their way out of recession. In rejecting that route, Estonia did the right thing. It depends on its external trade: Exports amounted to 79 percent of GDP in 2010 (compared, for example, with Greece’s 22 percent). With the European economy in savage, sudden free fall, efforts to pump up domestic demand would have achieved little.

Instead the government concentrated on maintaining the fiscal discipline that is one of the country’s most valuable assets and waited for better times, helped in the meantime by the fact that its banking system (dominated by the subsidiaries of large, well-capitalized Swedish banks) kept liquidity flowing. The wait was not too prolonged. Benefiting from policies often very different from those pursued by the tightwads of Tallinn, many of Estonia’s trading partners pulled out of their post-Lehman dive rather more rapidly than might otherwise have been expected, dragging the Estonian economy up in their wake as exports picked up again. The budget is (broadly) back in balance, and the ratio of central-government debt to GDP stood at 6 percent at the end of 2011, a time, ahem, when the U.S. number was over 100 percent. Estonia’s finances remained intact.

And so, largely, did the population. Demography is a sensitive topic in the three Baltic states, small nations with (in the case of Latvia and Estonia) ethnic balances severely distorted by the influx of Russians who arrived in the Soviet years. The slump has triggered a large wave of emigration. Estonia has been spared the worst of this, not least because of the presence of Finland (Finnish and Estonian are closely related languages) just across the Baltic Sea. Why emigrate if you can commute? There’s probably something else at play, too. All three countries have come a long way since their escape from Moscow in 1991, but Estonia has gone the farthest: Perhaps its citizens were more willing to believe that hanging on would be worth their while.

Estonia’s is an impressive story, but it is a distinctive one, with specifics — including a history of budgetary prudence, the presence of those Swedish banks, a heavy export orientation, assistance from the EU’s structural funds, and a windfall from the sale of emissions quotas — that mean that advocates of an Estonian solution to the euro-zone crisis should proceed with care. Crushing the economic activity on which tax revenues depend is increasing the burden of government debt in many of the PIIGS. In that sense, Krugman was right. Estonia is not a poster child for “austerity defenders.”

But it is a poster child for Estonia: Its frugal, free-market, low-tax, and transparent democracy is indeed something to emulate. An Estonian-style tightening could never have ended Greece’s slump, but if the Hellenic Republic had earlier taken a path that was more Baltic than Balkan, it would not be in the mess that it now is. Coulda, shoulda, drachma.

The sting in this tale is that the euro’s distress may mean that Estonia will not be allowed to follow its own example much longer. This will not be the first time that the trickster currency has caused trouble in Tallinn. It was the prospect of Estonia’s adoption of the euro that triggered that last, fatal surge in Scandinavian lending. On the other hand, it has also represented an additional incentive (and some political cover) for the maintenance of that budgetary discipline without which — ironically, in the light of the shambles elsewhere — the country would not have been eligible for membership in the currency union.

Switching to the euro was seen by most of the Estonian elite as final confirmation that the country had left its Soviet past behind. Even though the Estonian kroon had been pegged to the Deutsche mark, and then to the euro, since its rebirth, many ordinary Estonians were not so convinced that it should be swapped for the single currency, but the terms of the country’s accession into the EU in 2004 rendered their discontent moot. Calls for a referendum were ignored, and Estonia moved over to Brussels’s funny money on January 1, 2011.

If the alternative approach, retention and then devaluation of its own currency (frequently a useful tool in an economic crunch), was considered, it was not considered for long. Exports are vital to Estonia, but it adds comparatively little value to them. Devaluation would therefore have had little impact on their cost to international customers. What it would have done, however, is risk importing yet more inflation into Estonia’s small, open economy. Above all, devaluation would have, as Ilves explains, “wiped out” the middle class. Typically, the mortgages — often on properties that had since collapsed in value — that Estonians had taken out from those generous Scandinavians were denominated in euros. To repay them in depreciated krooni would have been a Sisyphean nightmare. Another alternative, redenominating those loans in local currency, was never a serious option: The liquidity that the Swedes provided throughout the crisis would have dried up overnight.

That was then. The problem now is that Estonia arrived in the euro zone at a very bad time. The safe haven has turned out to be anything but. And it could prove an expensive place to stay. Estonia dutifully helped underwrite the European Financial Stability Facility, the currency union’s temporary bailout fund, and just a few weeks ago ratified its commitment to the fund’s permanent successor, the European Stability Mechanism. If things go badly, that could leave this small country on an unnervingly large hook.

This has not played very well with the electorate. To date, the country’s voters, many of whom remember the infinitely harder Soviet period, have supported the hair shirt. The government was reelected with an increased majority last year. But bailing out feckless, richer folk in Europe’s south (for example, Estonian average earnings are only about one-third higher than the Greek minimum wage) has been a tougher sell. Most Estonians opposed participation in the EFSF and ESM. By contrast, the political class remains willing to trudge through euro-Calvary, although there are some signs that this resolve may begin to crumble if the bailouts grow bigger (and thus potentially more costly to Estonia) and more widespread. And it would be the insult, not just the cost. Should still-poor Estonia really be asked to stump up for Spain? Or Italy?

Ilves points out that, “to put it crassly,” Estonia has profited nicely from its membership in the EU (not least from the financial support that Brussels channels to the union’s less prosperous members), and it has — so far. But there’s an obvious danger that Santa could turn Fagin.

And the euro’s woes menace more than Estonia’s coffers. It now seems clear that attempts to fix the single currency will revolve around trying to integrate the euro zone into a deeper political and budgetary union. Such a union, were it to be formed, would be launched with promises of financial discipline, transparency, and democratic accountability, none of which, given such a construction’s artificial, ill-fitting, and unnatural character (not to speak of the EU’s own lamentable track record in these respects), are even remotely credible. And what then would happen to Estonia, trapped within a Frankenstein union that could be held together only by methods — budgetary and otherwise — that would be the antithesis of everything that independent Estonia has come to stand for?

Neither Ilves nor any other of the political figures to whom I have spoken in Tallinn appear to believe that this is what lies ahead, but, even amid the confidence that is the product of past success and satisfaction at Estonia’s hard-won arrival in “Europe,” it is impossible to miss some hints of uncertainty over what comes next.

That uncertainty needs to be replaced by alarm.

Declarer of Independence

National Review, March 1, 2012 (March 19, 2012 Issue)

He’s a tolerant man, Nigel Farage, a devotee of John Stuart Mill, a cricket-loving happy warrior, an “accidental politician.” The leader of the Euroskeptic United Kingdom Independence party (UKIP), and, since 1999, a member of the EU’s Potemkin parliament, he is standing expectantly at the bar of his local, the George & Dragon (of course) in Downe, a friendly low-ceilinged Kentish pub as English as its name. I’m ordering the beers. There’s a traditional, brewed-by-two-yokels county bitter for him (of course) and for me an industrial, vaguely Teutonic lager, bitte. “Euro-piss, I see.” Mock shock: Live and let live. Later on we share a bottle of good red wine. French.

We met up earlier at a railway station in a spot where the countryside emerges from London’s shadow. As we drove past tall hedgerows and stark winter trees, the late-fortysomething Farage proudly played guide: “I’ve always lived around here.” There’s landscape, history, old graveyards to inspect, English Shinto. Up there (he gestures) are the remnants of the oak where William Wilberforce resolved to launch his great anti-slavery campaign, and over here is the splendid pile where Pitt the Younger once lived. I point out Biggin Hill, an RAF redoubt during the Battle of Britain. Replicas of a Hurricane and a Spitfire stand guard. “They had real ones when I was a boy.”

Farage feels the past in this place. He’s a history buff, a battlefield maven, just finishing reading a book on Allenby of Great War fame. We stopped off at the small town of Westerham to inspect a statue of its most famous son, General Wolfe, conqueror of Quebec. Nearby, a restless-looking Churchill seems ready to leap out off the chair on which his sculptor sat him. The last lion’s last den — Chartwell — is nearby. Then on to the George & Dragon, just past the house of another Farage hero, Charles Darwin: The woods where the great scientist wandered are “just as they were . . . almost.”

But to believe, as many critics like to suggest, that Farage and his party are golf-club xenophobes wanting their country back as it was (. . . almost) is to subscribe to a very partial version (in both senses) of the truth. To be sure, there is a trace of the 19th hole about them; oh, what a horror. And is the idea that the country has gone to the dogs imprinted in UKIP’s DNA? Maybe, but the country has gone to the dogs. Claims of xenophobia, however, are difficult to reconcile with reality, in ways both small (Farage’s second wife is German; their two young children are being brought up to speak the language) and large: UKIP is a defender of de Gaulle’s Europe des patries, fighting the bureaucratic drive to remold the continent into a homogenized administrative unit in which history has been sanitized, tradition reduced to decoration, and difference regulated away.

If there is an era for which Farage is nostalgic, it’s more likely to be the 1980s, a time when big government was in retreat and big opportunity was round the corner. Not the most diligent of students, he skipped university and went straight into the City, London’s financial center, just as Mrs. Thatcher’s reforms were transforming it from an entertainingly seedy, mildly run-down club into today’s chilly international hub. It was “like a gold rush,” as we both recall. And there’s still the hint of an Eighties trading desk about Farage, an engaging, quick-witted risk-taker (a survivor of testicular cancer, he still enjoys his Rothmans) with a taste for a good time that has sometimes got him into trouble. Rick Santorum he’s not. Smart, direct, and impressively fluent, he speaks in paragraphs, punctuated with one-liners: He has a way with words, and he knows it.

If you doubt that, just check out the way he welcomed Herman Van Rompuy to the European Parliament shortly after that discreetly sinister Belgian had taken the EU’s top job at the beginning of 2010. Farage’s speech was brutally iconoclastic, rudely funny, and, in its warning of the threat that this official with “the charisma of a damp rag” posed to European democracy, deadly serious. It created uproar across the EU and made UKIP’s leader a YouTube star. Check it out, and you will see why.

“You’re a bit of actor, aren’t you?”

Farage grins his confession. His only regret — a very English regret — is that he may sometimes appear “too shrill.” In fact he doesn’t, but, endearingly, he insists on explaining that the microphones in the EU parliament’s chamber are set up in a way that makes it difficult for viewers to hear the barracking to which he is, not infrequently, reacting. But if it’s not always possible to make out the jeers, you can, I tell him, occasionally see the faces of his critics twisted into something that looks a lot like hatred.

“Oh, it’s hatred.” He names a couple of names. “They have their dream. It’s their religion. These are dangerous people.” They cannot accept dissent, especially when they know they’ve been rumbled: They just don’t want to be told how anti-democratic they really are. Wouldn’t they be happier if bolshie John Bull just quit the EU? “Some of the Euronuts,” maybe, but not the Merkels and Sarkozys: They’d be too nervous about which country would be next.

But is UKIP the right vehicle to extricate Britain from this mess? Since its founding in 1993 as a party set on taking the country out of the EU, it has woven an unsteady path, marked by scandal, factionalism, sporadic incursions by the far right, PR disasters, leadership crises, damaging outbreaks of eccentricity, and, above all, the pervasive, persistent sense that it was not ready for prime time. This was probably inevitable, and not just because small parties tend to be a lot like that. There was also the matter of UKIP’s great cause.

Euroskepticism was hardly unknown in Britain at the time — particularly amongst Conservatives — but it was house-trained. Withdrawal from the EU was widely considered a step too far even amongst those who loved Brussels least. “Banging on” about Europe (to borrow David Cameron’s notorious phrase from a decade or so later) was portrayed by media and political grandees alike as obsessional, retrograde, and profoundly damaging to the governing Tories’ unity, the last a development that, in a paradox understood by just about everyone, could only help sweep the slavishly Europhile Tony Blair into power. And, it turned out, keep him there.

Smears can be self-fulfilling prophecies: The nascent UKIP attracted more than its fair share of cranks, outsiders, and the hopelessly adrift. And it continued to do so, creating the image of the party to which David Cameron played when, in 2006, he referred to UKIP as a bunch of “fruitcakes and loonies and closet racists, mostly.” The feigned reasonability of that “mostly” was a clever touch.

Farage is no fan of Cameron. Is the prime minister a Christian Democrat on Rhineland lines? Not really. “Dave” (“an affable chap,” he adds, kindly) is more of a social democrat, a paternalist, a statist, and he’s not going to do much about Brussels: nothing that counts, anyway. Farage, a staunch Thatcherite back in the day, doesn’t have much time for the way in which the Conservative party has evolved. To read what UKIP would stand for, at least in theory (once Britain was out of the EU), is to be presented with an attractive mix of the hard-nosed and the libertarian, including deregulation, flat taxes, strict immigration controls, proper schools, tough policing, an aversion to multiculturalism, and a reversal of the kamikaze greenery of the Cameron years. Compared with the Tories, what’s not to like?

The problem is that Britain’s “first past the post” electoral system guarantees that, in most elections, a vote for UKIP is wasted — or worse. It’s “difficult,” Farage admits, an understatement. In the 2010 general election, UKIP scored some 3 percent of the vote, but took no seats, and, by nibbling away at Tory support, cost the Conservatives an absolute majority, thus (more or less) forcing them into coalition with the Eurofanatic Liberal Democrats. UKIP hoped that the Lib Dems would use their new position to push for the adoption of a voting system friendlier to small parties. They did, but they failed: A switch to the Alternative Vote was rejected in a referendum in May 2011.

Farage still wants electoral reform (AV+, since you asked). A glance at Britain’s elections for the European parliament (where a type of proportional representation is used) in 2009 explains why. Led by Farage since 2006, UKIP came in second (slightly ahead of Labour) with 16.5 percent of the vote and, like Labour, won 13 seats out of the UK’s total of 72. Even allowing for the low turnout and the fact that European elections are an excellent opportunity for Britons to register a protest against the EU, the result was a triumph.

Stymied at home, however, by the uncooperative electoral system, UKIP continues to struggle domestically, even as it stands at about 6 percent in the polls, not so far behind the Liberal Democrats. But Farage is determined, stubborn, and resilient (he has survived a plane crash as well as cancer). He’s not giving up. And he’s going to do it his way. Deals with the Conservatives, such as (one suggestion) an agreement not to challenge the party’s many genuinely Euroskeptic MPs, seem out of the question for now. Farage clearly wants UKIP to be seen as more than a Tory offshoot (he takes pains to tell me that its membership also includes “patriotic old Labour and classical liberals”). Those Euroskeptic Tory MPs? Useful camouflage for a Conservative party unserious about the only thing that really counts: prising Brussels out of Britain. “Unless we sort this out, we can’t do the rest.” The financial cost of EU membership is enormous (in direct payments alone, a net £10.3 billion in 2010, UKIP estimates). The democratic toll is still higher: About half of all “British” laws are now passed at the EU level. True enough, bad enough, but by splitting the right-of-center vote, Farage risks helping the Europhile left, which is always pressing to make matters even worse.

So there he stands athwart a political conundrum, Captain Sparrow at the head of UKIP’s motley crew, but something of a one-man band too, harrying the Eurocrats, embarrassing Britain’s establishment, deftly playing new media and old, deftly playing politics, new style and old. He crisscrosses the country, addressing meetings (he truly is a terrific speaker), talking to schools, retail stuff, good stuff. He’d like UKIP to take first place in the next European elections (2014), but what Farage, the gambler, wants most is a referendum — in or out — a high-stakes, binary game (a vote, however reluctant, to remain in the EU is every Euroskeptic’s nightmare). It would bypass that domestic impasse. And he believes it is winnable: His much-disdained UKIP has, “like Stalin’s [Red Army] punishment battalions, softened the ground up.”

The polls suggest that Farage might be right, but he understands that fear of what lies outside (possibly exaggerated further, and ironically, by the instability that the battered euro is leaving in its wake) could make voters pause. To calm that, he’s looking for business support to rally behind his idea of a country that sees its future in a world far wider, and freer, than the EU’s inward-looking, closed, and highly regulated customs union. That’s a vision that ought to be made all the more sellable to clearer-headed voters by the damage that the euro-zone crisis has done to the whole notion of Brussels’s “ever closer union.” And that crisis is unlikely to end soon or well. Farage doesn’t know what’s coming next. If he did, he’d be “in the betting shop.” He guesses that Greece will exit sometime in 2012, followed by Portugal, and believes that the “ultimate question” is France. But he’s not waiting to find out. To him, the issue is this: If Britain does not quit now, then when? Remaining in the EU is death “by a thousand cuts.”

I ask Farage whether he’d like Pitt the Younger’s old job. No thanks, he’s not interested in rank. He’d rather be remembered like a Wilberforce, for having changed things for the better.

Put another way, he will damn the torpedoes and steam on ahead.

Euro Melee

National Review, December 1, 2011 (December 19, 2011 issue) 

Brussels, July 1985 © Andrew Stuttaford

The euro may not have brought Europe together, except in shared misery, but it has divided it in previously unimaginable ways. Votes can now be won in Finland by bashing faraway Greece, a place hitherto thought of in Helsinki (if at all) as a helpful supplier of beaches. Europe being Europe, the troubles of the single currency have also given a boost to more traditional antagonisms and, Europe being Europe, revived plans for a nasty new tax.

That tax, the financial-transaction tax, is now being pushed by Germany (with France scampering behind). Britain, already in the doghouse for allegedly not doing enough to help out the single currency it had rejected, is talking veto, while Germany, being Germany, is threatening to proceed regardless. Fleet Street being Fleet Street, there are warnings of a “Fourth Reich.” Many Greeks are saying (and shouting) the same thing, much to the fury of those German taxpayers bailing out a nation they see as idle, dishonest, ungrateful, and — old prejudices bubble up — a little too swarthy to be trusted.

It’s time to calm down. The financial-transaction tax is a thoroughly bad idea, with a dose of old-fashioned national nastiness thrown in (Britain would pick up a huge percentage of the tab), but Merkel’s demands for better budgetary discipline within the eurozone are, in theory, rather more easy to justify. If Germany is, one way or another, to underwrite the common currency, insisting that its money is not frittered away is good housekeeping, not empire-building. Not an empire in any traditional sense.

But Merkel is pfennig-wise but mark foolish (or she would be if such splendidly sound money still existed). She is set on defending Germany’s interests, but only within the parameters of the EU’s transnationalist, post-democratic agenda, to which, it seems, she subscribes. The appealing idea that Germany should, for its own good, quit the eurozone, either alone or in the company, say, of the frugal Dutch, remains off limits, and there is absolutely no prospect that Germany’s voters will be given any direct say on that topic. They never wanted the euro, but they got it. Now they are stuck with it.

And that’s how the EU, born out of a distrust of nation-states and their voters, was always meant to work. The difficulty for Brussels is that this system is now being tested as never before: The eurozone has become the site of a dangerous, chaotic, and half-hidden power struggle between its political and bureaucratic leaderships (which are themselves deeply divided on how far to take deeper integration, but that’s mainly a tale for another day), nervous financial markets, and increasingly riled-up voters.

This wasn’t on the program. To the extent that Brussels had any strategy at the time of the single currency’s launch beyond finger-crossing and prayer, it was that the eurozone’s inherently flawed nature (very different economies joined in monetary, but not fiscal, union) would eventually lead to an over-by-Christmas “beneficial crisis.” Financial markets would force through the closer fiscal union that politics could not deliver. Once that had been achieved, the zone’s individual nation-states would count for very little, and their voters for even less.

That’s not how it has worked out. The mechanics of currency union (more on that later) have combined with irresponsible sovereign borrowing and the economic horrors of recent years to foment a financial storm that may be too devastating to be harnessed in quite so “beneficial” a way. The crisis could yet work out (in that cynical Eurocratic sense), but the terrible damage it has already caused has driven home the real costs — political, economic, and financial — of the monetary union to electorates that have long been denied an effective say in its future. Now that they know what they now know, it will be more difficult to keep them on the sidelines.

But over in the PIIGS they are still huddled there for now. In the last few weeks, Prime Ministers Berlusconi and Papandreou have been forced out with shocking ease, replaced by technocrats bearing the Brussels stamp. Italy was issued a former EU commissioner, and Greece a former vice president of the European Central Bank. Neither man had previously been elected to anything. Who cares? The message to Italian and Greek voters was clear — beggars cannot expect to be, so to speak, choosers — and so far surprisingly few of the beggars have objected. So long as it is seen to be better to be in the zone than out, hairshirts and all, this argument will fly. Underlining this, Spain, Portugal, and Ireland have all held elections, and, in each case, the electorate supported austerity. But if virtue’s reward is too long delayed, that consensus could easily shift, and if that change in sentiment is not addressed by those in charge, there could well be serious disorder.

A kinder, gentler eurozone, fueled by the printing presses of a looser, laxer European Central Bank and, once fiscal union has been safely set up, significantly higher transfers from the frugal “north” to the PIIGS, might be one way of smoothing the path to some sort of recovery. But the rise of the populist True Finns, the collapse of the Slovak government, and the continuing success of Holland’s Euroskeptical Geert Wilders all suggest that growing numbers of northern voters are in not such a generous mood. The only fiscal union they would be likely to support would be more Scrooge than Santa. These voters are signing checks, not receiving them. Their concerns ought to count for far more than those of the pauperized periphery. And they just might.

Even in Germany, there is some evidence that portions of the overwhelmingly Eurofederalist political class are becoming unnerved not only by popular discontent (as a proxy for that, nearly 80 percent of German voters are opposed to the issuance of Eurobonds guaranteed by all the eurozone’s members) but also by clear signals of unease from the country’s powerful constitutional court over the liabilities Germany may be taking on. Merkel’s grudging responses to the bailout requests of the last two years may have been an attempt to maintain financial discipline, but they are also a recognition that her domestic voters once again count for something. And maintaining that tough stance is playing well at home. According to a new ZDF poll, the percentage of German voters who approve of Merkel’s handling of the crisis has risen sharply (from 45 to 63 percent) over the last month.

To the extent that Merkel is a fan too of a Scrooge-style fiscal union, this may actually strengthen her hand as the eurozone’s bad cop. That’s something that alarms another key participant in this drama: the financial markets. Market players are fond of a quick fix. They are not very interested in the plight of the eurozone voter. Most are pushing for closer integration (preferably Santa-style) as the only way to make the single currency work. Merkel has not appreciated this pressure, or the turbulence that has come with it, and she is not alone. The currency union echoes with the rage of a European political/bureaucratic class that prefers to blame the crisis on wicked “Anglo-Saxon” speculators rather than on overspending and the shortcomings of a gimcrack currency union that should never have seen the light of day.

And it’s in the operation of the latter that the immediate danger lies. As Paul de Grauwe of Belgium’s University of Leuven has noted, if markets panic about one of the eurozone’s members, euros will pour out of that country (let’s call it Greece), and unless that flow is somehow reversed, that country (unable to print its own money) will simply run out of cash, and it will go bust. As I said, let’s call it Greece.

That gives markets the whip hand, and that does not play well on a continent that has never really shaken off its command-and-control traditions. So long as financial markets bought into the euro dream, their exuberance was welcome and, indeed, encouraged in Brussels, Frankfurt, and elsewhere. There were few complaints about ratings agencies, banks, or speculators back then. Now the bubble has burst. The markets have woken up, and, as we all know, the results have not been pretty to see — and they are visible to all.

This has not pleased the eurozone’s leaders one bit. They have responded with an onslaught of measures — from bans on certain kinds of short sales, to the financial-transaction tax, and, even, an aborted plan to censor the ratings agencies — all designed to throw sand in the gears of the free market, cut financiers (whose pay, even higher than that of the Brussels elite, has long been a source of irritation) down to size, and, in particular, give those semi-detached Brits, arrogant Yanks, the greedy City, and even greedier Wall Street a very good kicking.

To be continued . . .

The Province of Chance

Andrew  Roberts: The Storm of War: A New History of the Second World War

National Review, June 2, 2011 (June  20, 2011 issue) 

West Berlin, August 1977  © Andrew Stuttaford

The fall of Singapore is not news, the Rattenkrieg in Stalingrad’s ruins is not news, the grotesque theater of arrival at the Auschwitz railway siding is not news, but Andrew Roberts’s narrative gifts are such that it is almost impossible to read his retelling of these nightmares without some feeling of encountering the new. Almost: World War II is too familiar a saga for that. Still, Mr. Roberts, a distinguished British military historian, has produced a volume that serves as a comprehensive and clear (good maps too) introduction to this most sprawling of conflicts while adding fresh insights for those already well-versed in its twists, turns, and minutiae. Who knew that Hitler, ever the mystic, held the belief — ominous in the light of Russian winters to come — that “human barometers . . . gifted with a sixth sense” could predict the weather more accurately than mere meteorologists?

This is also, in the best meaning of the word, a balanced book, up to date (its author has made good use of recent research) without being faddish. That’s rarer than it should be. Clio is a restless, untrustworthy muse. History is malleable. Initial impressions count. That’s why Winston Churchill was so quick to write his account of the war: He wanted to set the mold. And he wasn’t the only leader to play this game. Their memoirs are valuable, but partial: Scores are settled, excuses are made, credit is claimed.

Later, when the professional historians moved in, they often seemed to do so in waves, all too frequently driven by fashion, opportunism, contrariness, and ideology. Magisterial in tone and spirit, The Storm of War rises above all that. No history book can ever truly be definitive, but this comes close.

There’s little that rewrites the past more than the release of once-hidden files. Roberts emphasizes the contribution made by the codebreakers of Bletchley Park; yet 40 years ago, their deeds were still classified. The opening of many archives in the former Soviet Union since 1991 ought to have eliminated any remaining traces of doubt about the nature of the Western democracies’ vile, essential, and dangerous ally: “The SS had been using gas vans to kill . . . since 1939: It was an idea borrowed from Stalin’s purges of the 1930s, during which people had been gassed in specially converted trucks.” “Uncle Joe”? Not so much.

Sometimes, the evidence was already available for all to see, even if not too many wished to look. The Holocaust was hardly a secret, yet it was decades before it assumed the central role it now does in our understanding of the European war. Roberts chronicles the darkness that descended in a chapter written with fewer rhetorical flourishes than its title — “The Everlasting Shame of Mankind” — might suggest. He lets the horrors speak for themselves: “Oswald ‘Papa’ Kaduk — his nickname came from his ‘love for children’ — gave Jewish children balloons just before they were squirted (abspritzen) in the heart with phenol injections at the rate of ten per minute.”

The conflict in Europe was, of course, about more than the Holocaust. The Allies did not go to war to rescue the Jews. Many Germans fought for reasons that owed little or nothing to Hitler’s anti-Semitic obsession. Nevertheless, Roberts doesn’t wall off the slaughter of the 6 million into one discrete chapter. As he rightly grasps, it infected everything. Roberts is an enthusiast and expert (as this book repeatedly demonstrates) of battle, campaign, tactics, and strategy, of tanks and planes and all the rest. That said, despite his appreciation of the fighting qualities of the German military — and the skills of its officer corps — he rejects the argument that the “decent” Wehrmacht was quite so different from the wicked SS as many have liked to maintain.

That myth may have helped build the peaceful postwar Bundesrepublik, but myth it was, and a highly successful one at that: An exhibition depicting some of the regular army’s fouler activities outraged a surprising number of Germans as late as the 1990s. But Roberts finds the Wehrmacht guilty as charged. He names the deeds, and he names the names: “After [the massacre of tens of thousands of Jews at] Babi Yar, Field Marshal Walther von Reichenau issued an order celebrating the ‘hard but just punishment for the Jewish sub-humans’ and [Field Marshal Gerd von] Rundstedt signed a directive to senior officers along much the same lines.”

More damning yet, if the experience of the “middle-aged, respectable working- and middle-class citizens of Hamburg” who made up Reserve Police Battalion 101 (the subjects of Christopher Browning’s devastating 1992 book Ordinary Men, and a force responsible for the killing or deportation of 83,000 people in German-occupied eastern Europe) is anything to go by, there would have been little risk of serious punishment for those who opted out of mass murder. It would have been a bad career decision, that’s all, but one that too few were willing to take. We can only wonder why. Ingrained prejudice? The effects of Nazi propaganda? Wartime brutalization?  Military discipline? Peer pressure (not all bands of brothers are benign)? Others simply enjoyed killing. Some were indifferent. Human nature is what it is. Our species had much to be ashamed about before Auschwitz. It has had even more to be ashamed about since.

And the disgrace was not confined to the Reich. Roberts devotes a good portion of his book to the war in the Far East and Pacific (with the Nationalist Chinese justly receiving more praise than usual, and Mao’s Communists, quite correctly, less), but, again, never lets his admiration for the martial get in the way of his grip on the moral. He describes Japanese cruelty in the Philippines in revolting detail, but, in a commendable display of respect, holds back on the even worse (“there were many other scenes . . . not denied by the perpetrators that are simply too disgusting to recount here”). The victims have already been degraded enough. In this war, however, there was plenty of savagery to go around: Roberts does not skate over the darker side of the Allies’ long march to victory. That he never falls into the platitudes of moral equivalence speaks volumes.

All this is typical of a book that is, at its core, deeply humane — and is so at several different levels. Roberts clearly relishes history’s wide sweep, which he relates in grand style; yet, no determinist, he is particularly fascinated by the missteps of those who shaped the war’s course. If you want to read a fascinating discussion of the sometimes idiotic decisions that led to the Axis defeat, The Storm of War is for you. Roberts is an author who never loses sight of the human side of this epic: His sketches of the extraordinary collection of bickering warlords who constituted the Anglo-American command, and of quite a few other senior officers besides (the Chindits’ inspirational, onion-munching Maj.-Gen. Orde Wingate — failed suicide, nudist, devout Christian, and ardent Zionist — for one), are worth the price of admission in themselves. But he doesn’t forget those in humbler roles, the millions of innocent dead, the millions left bereft, and, perhaps above all, the millions of soldiers whose feet filled those muddy, dusty, broken, bloody boots on the ground.

“Armchair strategists,” wrote George MacDonald Fraser, creator of the wonderful Flashman books and author of a fine memoir of the war in Burma, “can look at the last stages of a campaign and say there’s nothing left but mopping up, but if you’re holding the mop it’s different.”

Naturally, Mr. Roberts includes that quote.

PIIGS to the Slaughter

National Review, December 2, 2010 (December 20, 2010 issue) 

Checking into a roach motel often seems like a straightforward decision.

Signing up for the euro, the shiny new currency supposedly saturated in German fiscal rectitude, not only pleased Ireland’s paymasters in Brussels (the country has benefited hugely from lavish dollops of EU “structural” assistance) but offered Dublin the prospect of riches far closer to hand than the end of the traditional rainbow. The combination of EU aid (amounting in some years to as much as 3 percent of GDP), domestic frugality, shrewd supply-side reforms, and (those were the days) a timely currency devaluation had already given birth to a Celtic Tiger nourished on export-led success. But that beast was now set to burn very bright indeed.

And so it did. Money poured in, bringing the traditional speculative excess in its wake. So far, so normal: Usually such festivities are brought to a more or less timely close by both external and internal pressure. Inflation heats up, the currency buckles, interest rates rise, fiscal policy is tightened, bank lending is reined in, and everyone is soon back on their best behavior — until the next time.

Joining the euro meant that much of this script was jettisoned. Market signals were muffled by membership in a unified monetary system in which one size truly did not fit all. In particular, Irish interest rates, determined primarily by the needs of the eurozone’s sluggish Franco-German core, were kept far too low (on average, they were negative in real terms between 1998 and 2007) for a roaring economy growing at an annual average rate of 6 percent between 1988 and 2007. Throw in a poorly regulated banking system, endemic cronyism, vast infusions of foreign cash (euro membership had dramatically reduced currency risk), a lending war led by the remarkably reckless Anglo Irish Bank, the genuine housing needs of a large new immigrant population (a striking phenomenon in this land once known for its emigrants), and briskly increasing wage rates, and the stage was set for a gigantic property boom. What could go wrong?

Just about everything; and it went so badly that (finally) doing the right thing may have made matters even worse. When the global financial crisis erupted and the Irish economy slumped (GDP fell by 7.1 percent in 2009 after a 2 percent decline the previous year), real-estate prices fell (they are now some 35 percent below their peak, and weaker still in Dublin), and the banks came down with them. The government’s response bore some resemblance to the approach taken so successfully by Sweden during a not-entirely-dissimilar banking crisis in the early 1990s. This included guaranteeing most of the liabilities of the country’s troubled banks (and troubled they were — by 2007, property-related lending accounted for some 60 percent of their loan books) and transferring toxic assets to NAMA, the National Asset Management Agency, a state-run “bad bank.”

But Ireland’s banking sector was far larger relative to its GDP than Sweden’s had been, and so was its real-estate bubble. The Irish government has also had to contend with a far less favorable economic climate, a difference made even more damaging by the fact that the Irish tax system is unusually sensitive to changes in economic activity. Tax revenues fell by almost 14 percent in 2008 and by 19 percent in 2009, bringing yet more misery to the republic’s previously respectable but swiftly deteriorating public finances.

Recovery from a mess like this is never plain sailing, but one way to lessen the pain is to arrange a currency devaluation (Sweden let the krona fall by 20 percent in late 1992) to give exporters a break. Unfortunately, membership in the eurozone had closed off that option. Ireland was thus stuck with an overpriced currency, an overpriced workforce, and a rapidly growing hard-money debt burden that could not be inflated away. All that was left was “internal devaluation.” That’s an ugly name for an ugly cure generally revolving around extraordinarily brutal public-sector austerity. The aim is to restore both the state’s finances and the nation’s international competitiveness, and it’s just what Ireland had been attempting since 2008 with a series of increasingly bleak budgets intended to reduce the deficit by over $19 billion.

Internal devaluation is a bitter pill to swallow even when it works, but when it doesn’t . . .

And in Ireland it may well not. As it has lurched its way through 2010, the government has fed ever more money into the country’s devastated banks (most notably the now-reviled Anglo Irish Bank), effectively canceling out the savings being generated by the austerity program and pushing the estimated 2010 public-sector deficit to some 32 percent of GDP (it would otherwise have been around 12 percent). This renewed the market’s worries about Ireland and, ominously, other fiscally fragile eurozone members. Exacerbating the rising tension, the European Central Bank appeared to be continuing with its effort to scale back the short-term support it had been extending to the eurozone’s financial institutions — support that was widely assumed to be vital to many banks in most or all of the notorious PIIGS (Portugal, Italy, Ireland, Greece, and Spain). Perceptions of sovereign and banking risk were converging, not unreasonably so given the way that governments were standing (either explicitly or implicitly) behind their countries’ banks. To take one example, when Fitch cut Ireland’s rating from AA- to A+ this fall, it specifically cited the mounting cost of the bank clean-up.

All this made October a terrible month for German chancellor Angela Merkel to demand that the European Stability Mechanism, which is scheduled to replace the current European Financial Stability Facility in 2013, include a provision requiring private holders of government debt to share in the pain of future sovereign bailouts. The provision is common sense. To call for it at a time of jagged nerves over European sovereign risk was not. Merkel’s comments related only to arrangements that might be put in place in the future, but given her frequent tirades against “speculators” and Germany’s key role in funding any bailouts to come, many in the financial markets worried that they might herald an attempt to change the ground rules well before 2013 — and not in a way that would be in the interests of bondholders. Yields on PIIGS bonds rose, while money continued to drift away from Ireland’s banks, and investors from its debt. Theoretically, the country still had enough money to meet its financing needs until mid-2011, but, if panic was to be headed off (at least temporarily), its government had to be persuaded to accept the bailout that it was desperately claiming not to need.

The risk posed by spreading financial contagion was simply too high, and not just for Ireland. The European Financial Stability Facility, which was created for the eurozone with such fanfare (there was talk of shock and awe) at the time of the Greek bailout, is not large enough to rescue Ireland and Portugal and Spain, the next two countries most likely to be hit should confidence fall any farther. Dublin caved. An outline rescue package was announced on November 21. The full details were released a week later. The total package will amount to $110 billion, including an immediate $13 billion injection of fresh capital into the banking system. In an unanticipated development, Ireland will chip in $23 billion from its pension reserve fund and various other pots of money. The balance is set to come from the International Monetary Fund, from the European Financial Stability Facility, and from three non-eurozone countries, the U.K., Sweden, and Denmark. The whole thing is conditional on the passing of yet another Irish austerity budget, one that contains an additional $20 billion in tax increases and spending cuts. These cuts, when added to the earlier bouts of slash-and-burn, amount to roughly 20 percent of GDP.

At the same time, more details were given of the planned new European Stability Mechanism, but — not insignificantly — with (some) dilution of Angela Merkel’s proposal for sharing the burden of future bailouts. It was also agreed that Greece should be given an extra four-and-a-half years to repay its emergency financing from earlier this year. Ireland, however, will no longer be obliged to contribute to Greece’s bailout. On a brighter note, and over the objections of some in the rescue party, Ireland was allowed to retain the 12.5 percent corporate tax rate that has served it so well.

The republic’s governing coalition, a dying partnership between the centrist Fianna Fail and the Greens, has to pass the new austerity budget within a few days with a parliamentary majority of only two and without much popular support. In a clear warning sign for the general election now set for January, Fianna Fail received a November 25 by-election shellacking from Sinn Fein, a party frequently described as the political wing of the IRA. The EU’s mandarins like to claim that their “ever closer” union is burying Europe’s old nationalisms. That’s not how it looked in Donegal South West that weekend.

Despite this, Ireland’s mainstream parties recognize that the deficit needs to be reduced soon — even if they disagree on the specifics of the rescue package. At the time of writing, things are very fluid, but the best guess is that the budget will probably squeak through, albeit with a great deal of shouting. If it doesn’t, there’s a clear risk that financial chaos will soon engulf some or all of the PIIGS, and, no less dangerously, the banks that have lent so much to them. Even if it does go through, don’t expect too much. The distinctly downbeat market reaction to both the initial announcement of an Irish bailout (yields on the PIIGS’ government debt rose; the euro fell) and its later confirmation reveals a widespread belief that this rescue is not the end of the story.

It’s not. More bailouts undoubtedly lie ahead, and, in the case of Greece and Ireland, so does a debt restructuring (that’s the polite word for default) at some moment when it is judged that the financial markets can cope with the news. So long as these countries are yoked to the euro, there is no feasible alternative. Their domestic demand will be crippled by the processes of internal devaluation. Their export sectors will be hobbled by a hard currency. Under the circumstances, they will struggle to grow their economies at a pace fast enough to reduce their debt burdens to manageable levels. There are good reasons the yield on their debt continues to rise.

Meanwhile, Brussels, apparently unshaken in its belief that one size can be made to fit all, will try to impose unified fiscal and budgetary rules across the eurozone. If this succeeds, it may reassure restless German voters that there are credible limits on the amount they will be asked to pay to support European monetary union. That the implementation of such zonal discipline will, if carried through, also deepen European integration is even more to the Eurocrats’ point. That it would doom a large swath of the continent to years of subpar growth is just too bad. The European project must move forward!

Splitting the single currency into a “northern” euro for Germany and those of its neighbors that want to come along and a “southern” euro for the rest is one more congenial, if risky, alternative route to take. It would retain important elements of the status quo while paving the way for the devaluations that the PIIGS so badly need. But to take this path would be an admission of defeat too humiliating for the EU’s leadership to accept, at least for now. And if that’s off the agenda, so, even more so, is a return by the nations of the eurozone to their old currencies.

The final alternative, for an Ireland or a Greece to exit the euro on its own, would involve national bankruptcy, the collapse of much of the domestic private sector, and Lehman Part Deux. 

It’s not always easy to check out of a roach motel.

Young Lisbeth

Stieg Larsson: The Girl with the Dragon Tattoo, The Girl Who Played with Fire, The Girl Who Kicked the Hornet’s Nest

National Review, October 14, 2010 (November 1, 2010 issue)

Stockholm, December, 2009  © Andrew Stuttaford

I got Dan Brown, I really did. The history was bunk, the prose was Lego, and yet there was something there — that maddening, tantalizing what’s-going-to-happen-next — that kept me turning, turning, turning the pages deep into the night. By contrast, the success of Stieg Larsson, the Swedish thriller writer, who would — had he not died tragically young (only 50) in 2004, leaving just three (completed) novels behind — now be seen as a challenger to the impious Mr. Brown, leaves me more than a little amazed.

Collectively known as the Millennium trilogy, those three books have together sold over 30 million copies worldwide and quite a few bytes beside: Larsson is the first author to be downloaded over a million times on Kindle. Each installment has been made into a movie in Sweden. The first two films (I haven’t seen the third) were characterized by fine acting, land-of-Bergman pacing, and, of course, land-of-Bergman language, a tough sell anywhere much south of Malmo. Sure enough, a Hollywood remake is on the way, complete with James Bond, well, Daniel Craig, as Mikael “Kalle” Blomkvist, Larsson’s journalist-hero, and, for that matter, Larsson’s fantasy Larsson.

Craig was a smart choice: Borrowed glamour is better than none. Blomkvist may, in his painstakingly proper, pragmatically Scandinavian way, be something of a Lothario, but he’s also a middle-aged, excruciatingly priggish leftist, steeped in the shopworn pieties and bottomless paranoia of a certain strain of northern European political correctness. A bracing suggestion of 007 will be just what this tatty scribbler needs.

Mercifully, Hollywood’s filmmakers will probably follow the lead of their Swedish predecessors and dilute the “progressive” preaching that drones on throughout the Millennium saga, most loudly in the shape of a septic feminism fueled more by an apparent dislike of men than anything else. As a teenager, Larsson is said to have witnessed the gang-rape of a girl by some of his friends, a horror that he failed both to stop and to report. The form his feminism takes is thus a very public atonement. It’s not subtle — the Swedish title of the first novel is Man som hatar kvinnor (Men Who Hate Women), and its narrative is festooned with factoids designed to show just how hateful men can be. In all three novels his (almost invariably male) villains are brutish, sexist pigs, include abusers of prostitutes amongst their sleazy ranks, and, all too often, are in pursuit of underage entertainment.

Intriguingly, Larsson’s heroine and Blomkvist’s sometime lover, Lisbeth Salander, a busily bisexual 25-year-old hacker, is less than five feet tall, “doll-like,” and, until some breast-augmentation surgery in the second book comes to the rescue, “flat-chested, as if she had never reached puberty.” Make of that, Dr. Freud, what you will.

The more conventionally left-wing opinions that flavor the book are less bothersome and more predictable. The precincts of Schwedenkrimi (a subset of literature extensive enough to boast its own German compound noun) are a thoroughly Social Democratic (or worse) place. The genre’s pioneers (Maj Sjowall and Per Wahloo, co-authors of an enjoyable series of books between 1965 and 1975) were Stockholm-style soixante-huitards. Their most prominent successor, Henning Mankell (best known internationally for his marvelous Inspector Wallander), is another red-flag man, and a veteran of the embattled Gaza flotilla earlier this year. Under the circumstances, Larsson, an erstwhile Trotskyite who, like the fictional Blomkvist, spent much of his career working for a small leftist periodical, fits right in.

If Larsson’s politics are an irritant, his prose is a catastrophe. Nordic crime fiction tends to be written in a matter-of-fact way, but at his worst, Larsson is just a matter of lists:

She was back in Soder by 5.00 p.m. and had time for a quick visit to Axelsson’s Home Electronics, where she bought a nineteen-inch TV and a radio. Just before closing time she slipped into a store on Hornsgatan and bought a vacuum cleaner. At Mariahallen market she bought a mop, dishwashing liquid, a bucket, some detergent, hand soap, toothbrushes, and a giant package of toilet paper.

No, the translator is not to blame.

For all that, The Girl with the Dragon Tattoo passed the Dan Brown test. Easily. There was something about the mystery that forms its dark core — a classic locked (more or less) room whodunit complete with truly hideous family secrets — that pulled me in. Even so, by themselves neither the dreadful doings of the decadent Vanger clan nor the occasional glimpses of hauntingly wintry landscape would have been quite enough to do the trick. Throw in a brilliant investigator compared with whom old cocaine-and-Stradivarius Sherlock is Andy Griffith, however, and airport bookstores’ Stieg-crammed shelves begin to make sense.

Heavily pierced and tattooed, Larsson’s surly, taciturn, and thoroughly antisocial Salander is a pattern-finding genius with a preternatural gift for hacking more typical of those modem-heavy movies that littered the dawn of the Internet age. She is also, Blomkvist realizes, someone who almost certainly plays for Dr. Asperger’s team. Oh yes, did I mention that Lisbeth is handy with a gun and good in a brawl? Absence of empathy, a surfeit of strangeness, and a comic-book collection of skills make her an ideal subject for Larsson’s surface-dwelling talents, yet somehow this plodding Swede also manages the remarkable achievement of persuading his readers to care about someone who would not, could not, give a damn about them. 

The Girl with the Dragon Tattoo is a decent, self-contained story. If Larsson had stopped there, all would have been well. Unfortunately, he didn’t. The remaining two books are in fact one (they are separated by an abrupt break of Dickensian shamelessness) and they should have been none. Despite a MacGuffin involving sex trafficking (a suitably modish variety of XY villainy, and much in the Swedish headlines when Larsson was writing), The Girl Who Played with Fire is really all about Salander, the eponymous Girl. She shifts from being puzzle-master to puzzle, a transition that Larsson fumbles and, in the course of the final part of the trilogy, drops.

Part of what made Salander so interesting in the first place was the depth of her detachment, an idea that cannot survive her transformation in the second and third books into tough-grrl cliche, a lethal and seemingly indestructible combination of avenging angel, Modesty Blaise (an endearingly enduring heroine throughout Scandinavia), and, as underlined by a few sly hints in the text, Pippi Longstocking. Larsson had become so infatuated with his own creation (he had plans for ten books about her) that he came to believe that Salander, and the baroque background he dreamt up for her, would be enough to bring his readers along for the balance of the trilogy. Millions of the misguided have proved Larsson right, but your reviewer sticks to his opinion: Salander’s legend was allowed to overwhelm the story — and it wrecked it.

Mind you, as baroque backgrounds go, Salander’s is a doozy. It ranges far from the obligatory wretched childhood, venturing into territory that the borrowed 007 could easily call his own, all the while retaining an aura of suspicion and resentment that has a lot to do with the author, and not much with the plot. To read Larsson is to be given the impression of a Sweden where a handful of dedicated comrades struggle for their vision of justice against the overwhelming power of the Man. Given how much of Sweden’s ancient Social Democratic consensus still lingers on (notwithstanding any impression left by the recent election results), that is still, unfortunately, something of a stretch.

Nevertheless, Larsson sometimes allows a glimpse of a more authentic Sweden to slip through, something that will add to the interest in his writing to those living outside that remote Nordic bastion. Some of it — the leniency of the criminal justice system when compared with the American model — ought to take nobody aback, but other aspects will be more surprising. Henrik Vanger, an aged and ailing industrial titan, is allowed to come across as a sympathetic figure, a reminder that in Sweden — home, after all, of the powerful Wallenberg dynasty — social democracy has traditionally come with a notably corporatist tinge. It is the “yuppies” (itself a tellingly dated term), assertive, individualistic, and disruptive of time-honored Swedish ways, to whom both Larsson and Blomkvist object. The grandees who had run the companies that actually made things were fine: The “twenty-point stags of the old school” knew their place in the old consensual nation — even if it was close to the top of the tree.

Some may be taken aback by how ethnically diverse Larsson’s Stockholm turns out to be. In part, this is simply a reflection of the facts on the ground (nearly a fifth of the Swedish population is either foreign-born or a child of two foreign-born parents), but in part this glorious northern mosaic was also clearly an attempt by Larsson, much of whose journalistic career was spent in the anti-racist trenches, to remind his Swedish readers that their Folkhem had changed (in this case, the implication is that it’s for the better), a theme frequently echoed by other Nordic detective writers: A muttered racial slur is a good sign that a murderer has arrived on the scene.

But for a more evocative sense of Scandinavian locations alongside Scandinavian mayhem, there are better places to go. Wallander’s atmospheric Ystad is one obvious starting point, as is Jo Nesbø's sharply drawn Oslo, but I’d rather start with The Darkest Room, the sophomore novel by Johan Theorin: a spooky, beautifully written tale of a manor house on a half-deserted Baltic island that is the setting for the most exciting snowstorm I have read in years.

And Trotsky is nowhere to be seen.

A Most Uncomfortable Parallel

National Review, January 25, 2010

Let’s just agree that if you are looking for someone with whom to compare Barack Obama, the mid-20th-century British prime minister Clement Attlee does not come immediately to mind. Some might opt for FDR, some the Messiah, others the Antichrist or, harsher still, Jimmy Carter. Attlee? Not so much.

To start with, there’s the whole charisma thing. Attlee was the Labour leader who humiliated Winston Churchill in Britain’s 1945 election, but that victory (one of the most sweeping in British history) was more dramatic than the victor. No Obama, the new prime minister was shy, understated, and physically unprepossessing. Balding, sober-suited, and with an unshakeable aura of bourgeois respectability, Attlee resembled a senior bureaucrat, a provincial bank manager, or one of the more upscale varieties of traditional English murderer. If you want an adjective, “dull” will do nicely. As the jibe went, an empty taxi drew up, and out stepped Attlee. His speeches were dreary, largely unmemorable, and marked mainly by a reluctance to deploy the personal pronoun: Not for Attlee the “I”s and “me”s of Obama’s perorations. Clem was a modest man, but then, said some, he had much to be modest about.

That’s an insult that’s often attributed to Winston Churchill, but almost certainly incorrectly: Churchill had considerable respect for the individual who defeated him. Realize why and comparisons between the stiff, taciturn Englishman and America’s president begin to make sense. For the GOP, they are good reason to be alarmed.

There are the superficial similarities, of both character and résumé. Despite their very distinct camouflages both men are best understood as being cool and calculating, not least in their use of an unthreatening public persona to mask the intensity of their beliefs and ambitions. The two even have in common their pasts as “community organizers,” in Attlee’s case as a charity worker amid the poverty of Edwardian London’s East End, a harrowing and intoxicating experience that drove him to socialism. More important still is their shared eye for the main chance. In a private 1936 memo, Attlee (by then leader of his party) noted how any future European war would involve “the closest regimentation of the whole nation” and as such “the opportunity for fundamental change of the economic system.” Never let a crisis go to waste.

Attlee was right. In 1940 the Labour party was asked to join Churchill’s new national coalition government (with Attlee serving as deputy prime minister), and it wasn’t long before Britain had been reengineered into what was for all practical purposes a command economy. The extension of the state’s grasp was theoretically temporary and realistically unavoidable, but it quickly became obvious that the assault on laissez faire would outlive the wartime emergency. The crisis had overturned the balance of power between the public and private sectors. It was a shift that, when combined with Britons’ widespread perception of prewar economic, military, and diplomatic failure, also shattered the longstanding political taboos that would once have ensured a return to business as usual when the conflict came to an end. With Britain’s ancien régime discredited (it’s debatable quite how fairly), there was irresistible demand for “change.” Prevailing over the Axis would, most Britons hoped, mean that they could finally turn the page on the bad old days and build the fairer, more egalitarian society they felt they deserved.

It is a measure of how far the political landscape had been altered that by March 1943 Winston Churchill was announcing his support for the establishment after the war of “a National Health Service . . . [and] national compulsory insurance for all classes for all purposes from the cradle to the grave,” a stance that echoed an official report published to extraordinary acclaim the previous year. Churchill did, however, take time to warn that it would be necessary to take account of what the country could afford before these schemes were implemented.

Such concerns were alien to Attlee. The abrupt end of American aid in the form of the Lend-Lease program within a month of the Labour victory had left the U.K. facing, in Keynes’s words, a “financial Dunkirk.” The clouds cleared a little with the grant of a large, if tough-termed, U.S. loan, but the risk of national bankruptcy remained real for some years. Attlee pressed on regardless. The creation of the welfare state was his overwhelming moral and political priority. He had been presented with a possibly unrepeatable opportunity to push it through, and that’s what he did. To carp was mere bean counting. If there were any gaps, they could surely be filled by the improvements that would come from the government’s supposedly superior management of the economy and, of course, by hiking taxes on “the rich” still further. Is this unpleasantly reminiscent of the manner in which Obama has persisted with his broader agenda in the face of the greatest economic crunch in over half a century? Oh yes.

There’s also more than a touch of Obama in the way that Attlee viewed foreign policy and defense. A transnationalist avant la lettre, the prime minister thought that empowering the United Nations at the expense of its members was the only true guarantor of national security, a position that made his inability or unwillingness to grasp the meaning of either “national” or “security” embarrassingly clear. It is no surprise that he was reluctant to accept the inevitability of the Cold War with a Soviet Union already on the rampage. Attlee would, I reckon, have sympathized with Obama’s hesitations in the face of today’s Islamic challenge. Mercifully, reality — and the U.K.’s tough-minded foreign secretary — soon intervened. Britain adopted a more robust approach to its national defense (sometimes misguidedly; too many resources were devoted to an unsustainable commitment to some of the more worthless scraps of empire) and a place in the front line against Soviet expansion. In a sense, however, Attlee was to have the last laugh; the long-term damage that his government inflicted on the British economy meant that, even apart from the huge costs of the country’s post-war imperial overstretch, its decline to lesser-power status was inevitable.

But judged on his own terms, Attlee succeeded where it counted most. His nationalization of a key slice of British industry (including the railways, some road transport, gas, coal, iron and steel, the Bank of England, and even Thomas Cook, the travel agency) eventually proved disastrous; his intrusive regulatory and planning regime (not to speak of the crippling taxes he promoted) distorted the economy and retarded development for decades; the costs of the new National Health Service (NHS) instantly spiraled beyond what had been anticipated; and so on and on and on — but, well, never mind. In the greater scheme of things, he won. To this ascetic, high-minded statesman, GDP was a grubby detail and budgets were trivia. What mattered was that he had irrevocably committed Britain to the welfare state he believed to be an ethical imperative — and the NHS was its centerpiece.

And yes, that commitment was irrevocable. While a majority of Britons approved of including health care in their wish list for the post-war renewal of their nation, socialized medicine had not been amongst their top priorities. But once set up (in 1948), the NHS proved immediately and immensely popular, a “right” untouchable by any politician. For all the grumbling, it still is. The electoral dynamics of the NHS (which directly employs well over a million voters) were and are different from those of the likely Obamacare, not least because the private system the NHS replaced was far feebler than that, however flawed, which now operates in the U.S. Nevertheless, the lessons to be drawn from the story of the NHS form part of a picture that is bad news for those who hope that GOP wins in 2010 will shatter Barack’s dream.

At first sight, the fact that Attlee barely scraped reelection five years after his 1945 triumph would seem to suggest the opposite, but to secure any majority in the wake of half a decade of savage economic retrenchment was a remarkable achievement. The transformation of which the NHS represented such a vital part (and the events that made that transformation possible) had radically shifted the terms of debate within the U.K. to the left and, no less crucially, reinforced Labour’s political base. To remain electorally competitive, the Tories (who finally unseated Attlee the following year) were forced to accept the essence of Labour’s remodeling of the British state, something they broadly continued to do until the arrival of Mrs. Thatcher as Conservative leader a generation later. It’s no great stretch to suspect that a GOP chastened by the Bush years and intimidated by the obstacles that lie ahead will be just as cautious in tackling the Obama legacy.

And that will be something to be modest about.