EWR Bulletin: The Trouble In Europe

The trouble in Europe isn’t really about the euro, or about the debts of the governments; it’s about the European Union. The debt crisis and the fall of the euro are just symptoms of what might turn out to be a new war in Europe.

The marriages that last are those in which the partners focus not on making things right but on making each other happy.

In January, eleven European powers plan to marry. All are intent on making things right.

For more than a thousand years Europe has been addicted to a terrible myth. Called the Pax Romana, or the Roman Peace, this myth says that for two centuries beginning in 31 BC the Roman Empire was peaceful and prosperous due to a large, powerful central government that kept everyone in line.

European statists pine for a return to the Pax Romana, never mind that the Pax Romana did not happen. The 200-year “Pax” was filled with tyranny, assassinations, terror, rebellions, foreign wars and civil wars. Let me emphasize, civil wars. The Hebrew revolt in 70 AD was only one of many throughout the empire. Statists rarely let facts interfere with their dreams.

The Pax Romana is the fantasy at the heart of the United Nations and most other such schemes to “unite” the world under one strong central government.

Unity has never worked in Europe, but this didn’t keep Charlemagne, Ivan the Terrible, Napoleon, Hitler and Mussolini from trying it. For centuries the guiding philosophy of Europe’s rulers has been that of the Roman Empire, fascism.

The symbol of fascism is the Roman fasces, a bundle of rods joined with a battle ax. The bundled rods symbolize political unity. The ax indicates what happens to anyone who refuses to submit to this unity.

Fascism was respectable and popular until Hitler and Mussolini showed where it ultimately leads. And, fascism remains popular, especially among statists, but no one uses the word anymore.

Travel around Europe looking at art and architecture, and you will see the fasces everywhere, especially in Paris and Vienna, which were the capitals of the French Empire and the Holy Roman Empire. Roman_Architecture

Fascism is the simplest of all political philosophies, it boils down to 11 words: power holders should do whatever appears necessary, no exceptions, no limits.[1]

If socialism appears necessary, fine. If free markets appear necessary, fine. Tyranny, fine. Liberty, fine. And, if changing systems overnight appears necessary, this is fine, too.

Now freed from the burden of its name, the philosophy has spread like a plague, and is probably the most popular in the world. I call it the Roman disease.

The basic style of Roman architecture is a pediment[2] over columns. This appears on thousands of buildings throughout Europe (and the US).

The facade of the famous Ritz Hotel in Paris is a pediment with columns, plus decorations that include a fasces. Walk out the front door of the Ritz and you see in the city square, Napoleon’s Column. This is a copy of Emperor Trajan’s Column in Rome. On top of the column, Napoleon wears a Roman toga.

Europeans are so immersed in Roman symbolism that to them the Roman disease seems perfectly natural. One of the seldom mentioned embarrassing facts of World War II is that as Hitler rose in Germany, millions outside Germany were drawn to him, too. In Austria, steeped in Roman tradition, Hitler may have been more popular than he was in Germany.

When the Germans invaded France, half the country formed an alliance with them, basing the capital at the city of Vichy. Most of the French Foreign Legion sided with the Vichy government and fought on the side of the Germans.

For people bathed in Roman heritage, the strong central government that promises to do whatever appears necessary is a powerful temptation.

The fasces is depicted far more in the art and architecture of the modern world than in those of the Roman Empire itself. In Vienna I have counted no less than a dozen fasces decorating the exterior of the Belvedere Palace.

To learn more about the Roman disease, read my short book ancient rome, how it affects you today. (Call 1-800-509-5400.) This book is number five in the Uncle Eric series of eight books.

The latest manifestation of the Roman disease is the European Union. Centered around the French and German economies, the EU is a project hatched by European statists in the 1950s. Their plan is to create a United States of Europe under one strong, central government.

Right from the start the statists knew that the typical European would not soon forget the catastrophes of Hitler and Mussolini. The next campaign to revive the Pax Romana and “unite” Europe would have to be done gradually over decades.

One of the final and most important steps in this gradual process is the abolishment of national currencies and creation of a single European currency called the euro.

France and Germany are at the center of the euro bloc, called Euroland. On May 3, others that agreed to join Euroland were Austria, Belgium, Finland, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. The euro will be launched in January. The EU hopes to pull in Britain, Greece, Denmark and Sweden later.

Break a law and what happens to you? Men with guns show up at your door and haul you away to prison.

Law is force. If you are a European and your government joins the EU, you suddenly have 80,000 pages[4] of new laws dumped onto you. Lincoln_Memorial

This 80,000 pages of EU law is a stack of paper 26 feet high. You could not possibly read it, much less understand and obey it. The only thing you can be certain about is that hidden within these 80,000 pages are a lot of nasty surprises. EU lawmakers have been very busy doing what they think necessary. The Roman disease.

In short, once your government shoves you into the EU, your life is in the clutches of a distant bureaucracy you don’t understand and didn’t vote for

Each nation in Europe has had its own currency for centuries, and therefore has a level of malinvestment peculiar to itself. I’ll explain.

Money responds to the law of supply and demand just as everything else does. When the number of units of money is increased, the value of each individual unit falls, and prices rise to compensate.

So, inflation is not rising prices, it is a rising money supply that causes rising prices.

When a government inflates its money supply, the new money does not descend on the economy in a uniform blanket. It goes into specific areas, usually those that are fashionable, or those at which the government directs the money through its own spending or regulations.

Businesses crowd into areas that are receiving these extra flows of money. They invest in stores, offices, factories, machines and other capital to tap into the flows. The more money flows into an area, the more capital is created there.

In effect, the money pours into the economy like thick molasses poured into a bathtub from hundreds of pitchers. This creates cones of money, and businesses crowd into these cones.

The cones are not natural. Businesses would not move into these areas if money were not poured there, they’d go elsewhere. So, the businesses in these cones are not investment, they are malinvestment. When the government stops inflating, the cones wither; businesses dependent on the flow of money starve.

For centuries, each of the dozens of European governments have inflated their money supplies at varying rates, and pumped the money into widely varying areas so that each country has a different landscape of cones.

Each cone landscape is dependent on a different rate of inflation, and a different mix of regulations and spending policies, or pitchers. The stores, offices and factories are there, real and solid, each dependent on its own unique cone of money.

By switching to one currency for all, the European Union is imposing a single rate of money creation on all its members. Unity. One government, one currency. The Roman disease.

This necessarily starves a lot of cones and creates a lot of new ones, but not uniformly; some geographic areas are winners and others losers. This is called “asymmetric shock.” (This process is fully explained in my short Uncle Eric book, whatever happened to penny candy? and in the clipper ship strategy.)

Looking at it on a nation by nation basis, presently Ireland, Finland, Netherlands, Portugal and Spain are expanding so strongly they show signs of inflationary bubbles. For them, monetary policy is loose.

France and Germany, which account for 55% of the Euroland economy, are depressed; for them, monetary policy is tight.

The theory is that over time things will smooth over. The old malinvestment will be shaken out, new euro cones will grow, and everyone will be better off due to more open trade between countries.

The model the statists point to is the US, which has 50 states but only one currency and few trade barriers between states.

Wishful thinking blinds statists to the fact that the US also has just one language. When a cone in Seattle dies, workers in that cone can move to a new cone in Omaha. People in Omaha speak the same language. Workers from Seattle can learn new jobs and go to work alongside others from Pittsburgh, Detroit and Boise.

When cones die in Paris, the workers cannot move to Dublin, they don’t speak Irish. They are stuck in Paris demanding that their government support them until their cones return, which may be never.

Inhabitants of the New World generally think of a country as an entity formed by smaller states that came together voluntarily.

In the Old World, voluntary formations are almost unknown, nearly every country was formed by conquest. Large, powerful governments “unified” their nations by killing anyone who refused to join. The fasces, the ax, the Roman disease.

Italy, for instance, did not become the country we see on maps today until it was “unified” at gunpoint by Victor Emmanuel in 1870. Germany was unified by Bismarck in 1871; Yugoslavia by Peter I in 1918.

These “unifications” have left a lot of hard feelings throughout the Old World. Millions feel more loyalty to their local ancestral groups than to their governments. Nations_Italy

Ask an Italian his nationality and he may not say Italian, he may say Milano, Viennese or Genoese, referring to his city. Northern Italians especially want nothing to do with the underdeveloped south and are embarrassed to have connections with it. In their minds, everything below Rome is Africa.

Many areas of Europe already feel the squeeze from the movement toward a single currency. The EU’s unemployment rate averages a crushing 11%. As cones die, groups dependent on them feel they have been sold out by their governments. And, of course, they are right. They have been sacrificed to “the greater good,” meaning the EU, the same EU that is forcing 80,000 pages of new laws onto them. They hate the EU and — this is my most important point — they increasingly hate their own governments for selling them out to the EU.

I was in France during the May signing. In some towns we saw the EU flag flying over the French flag, and the French flag above the local flag.

What caught my eye was that in some areas the local flag was flying above those of France and the EU. The message was clear, and ominous, as when states in the American South flew their flags over that of the US, just before the Civil War.

[1] I refer to the legal system of the Empire, not of the Roman Republic, which was roughly 500 BC to 31 BC. The legal system of the Republic was based on an early form of Common Law. The Empire in Europe was from 31 BC to 476 AD.

[2] Triangle

[3] 12 gold stars in a circle, on a blue field.

[4] Economist, June 6, 1998, p.51.

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