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Thursday, May 10, 2012

Europe's Crisis: A Roadmap From the Past

Hayek and Röpke saw it all coming -- and it could still happen here.

These are rough days for the European Union (EU). What began as a sovereign debt crisis has now metastasized into a political debacle for the leaders left holding the bag. Nicolas Sarkozy's electoral defeat in France, the ouster of an austerity-minded government in Greece; and last month's collapse of the governing coalition in the Netherlands are all symptoms of a deeper problem for Europe: bloated governments are hard to tame, even when there is no money left to pay for them.

This is bad news for Europe. But the political tumult on the continent is also a stunning vindication of the post-War thinkers who anticipated this outcome. These individuals, men like Friedrich von Hayek and Wilhelm Röpke, would become founding intellectual fathers behind the modern conservative movement in Europe and the United States. Even today, their foresight provides a defining roadmap for navigating away from Europe's current crisis and offers a chilling warning to the United States about repeating the same mistakes.

Much like the debt crisis of our own time, the dimensions of Europe's post-War reconstruction were staggering. Only instead of ruined factories and decimated cities, today's contemporary European leaders must contend with bombed out credit ratings and the herculean task of reordering the continent's dysfunctional economies. Then, as now, the basic policy debate centered on the state's role as guarantor of public prosperity and welfare; and perhaps more importantly, how to finance it.

Wading into this dispute, Hayek, Röpke and other post-War conservatives did not deny the need for basic social insurance schemes. But they foresaw that the promises of an ever-expanding welfare state would be maintained at heavy costs: both in taxation and freedom. With stunning prescience, they warned that unless state services were limited to basic forms of social insurance, the financial basis for Europe's economic order would become structurally unsound and dangerously unmanageable. Government largesse would invariably grow and require increased revenue from taxes or heavy borrowing against future economic growth. As citizens relied on the state to protect them from the uncertainties of life, they would become dependent on it; but woe to politicians who would try to wean voters off of the state.

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