By Franz Schurmann

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Prediction #16 for Tuesday, June 8th,1999

The Euro Will Continue To Slide

• Prediction:
  The euro has been sliding since it was formally introduced on January 1, 1999. I predict it will continue to slide. (See Wall Street Journal graph)

• Outcome:
  I shall evaluate Prediction #16 on Tuesday, September 7, one day after America's Labor Day

What's wrong with Europe? The surface answer is seemingly incurable high unemployment. The deeper answer is that Europe never was destined to be united.

Many West European countries have had double digit unemployment for many years. Europeans know that high unemployment can have terrible consequences. In 1932 over a quarter of the German work force was without jobs. In January 1933 Hitler and his Nazi Party came to power. They rapidly reduced unemployment by creating a war state.

The decision to adopt a common currency --- the euro --- was made in December 1995 and implemented this January 1. Its advocates believed that the euro would stimulate growth and employment throughout the European Union (EU). America with its low inflation, low unemployment and adequate growth was their shining model.

The EU's creators believed that a major historical reason for America's success was that it was a union of united states. They saw the EU as a united states of Europe. They also knew that there was a 19th century precedent for European unity. It was the 1834 Tariff Union (Zollverein) of the German states that led to the unification of Germany in 1871. The lesson to be learned from both was: a common currency would lead to strong economic growth and then to political unity.

Yet since January 1 the euro has been going down and down. High unemployment remains. Right wing political forces driven by ultra-nationalist ideologies are growing. And instead of being a shining region of peace it sees an ugly war going on in its southeastern extremities.

What's wrong?

The Wall Street Journal of June 7 pointed to three conventional reasons for the euro's slide. First that America's fast growth and high interest rates were sucking in European capital. Second that by letting Italy get away with budget-breaking the EU leaders were endangering the entire euro system. Third that many politicians who paid lip service to the euro deeper down welcomed a weaker euro as a way of stimulating growth in their own nations.

The latter reason, in my view, comes closest to explaining what's wrong. Take the French for example. The socialist prime minister Leonel Jospin supports the euro. But many French socialists and most communists oppose it. So does the nationalist right, especially the growing National Front.

Both left and right see the euro as an instrument of American globalism. They also see the euro as little more than the German mark in drag. And while most French no longer harbor animosity for Germans they know that for a thousand years Germans played a fateful role in their history.

Traditionally the French have been friendly to Americans. But now they see America as a rising world empire with a powerful civilization that bulldozes cultures away as if they were old buildings to be replaced by futurist sky-scrapers. As readers of the left-leaning Le Monde Diplomatique (it has an English edition) know America is equated with globalism and LMD's writers passionately hate both.

The reality is that both the EU and the euro are creations whose conception and birth occurred totally without feeling. The entire system reeks of test tubes and bureaucrats. It couldn't be more different from its American model. The European political classes tend to be coolly rational. The American political class on the other hand is driven by all kinds of feelings --- good, bad and mostly self-serving. America worked because its heart was in it. But there is no heart either in the EU or the euro.

There is another reason why the euro is not working: jealousy of America. Many French and Germans wonder why it isn't they, rather than the Americans, who now are resurrecting the ancient Roman Empire. They see the Kosovo war waged by a NATO where the command and control is American. It's the American commander Wesley Clark who constantly appears in media footage on the Kosovo war.

In fact, the sphere of NATO's responsibilities pretty much covers the same territory as that of the Roman Empire at its peak two millennia ago. Azerbaijan on the Caspian shores wants a NATO base. Those shores were the eastern extremity of Rome's empire. It's western extremities were Spain and what is now called Morocco. NATO's northern command headquartered in Brussels covers Roman Europe plus Germany (now also including Poland, Hungary and the Czech Republic). It's southern command headquartered in Naples dominates the entire Mediterranean.

For a thousand years the French and Germans tried to unify Europe. Again and again they failed.

In the year 800 Charlemagne --- Charles-the-Great --- revived the ancient Roman Empire. It more or less ended with his death in 814. He was a Frank, whence the word French. But the Franks spoke German and Frankish still is a German dialect. Charles V of Austria ruled Europe --- plus much of the world as well --- for a few years during the 1500's. Austrians speak German but aren't German. Napoleon was crowned emperor of Europe in 1805 but was brought down in 1814. He was Corsican and his mother tongue was an Italian dialect. The Austrian Hitler's "Third Reich" lasted five years, 1940-1945.

A brilliant but fatal triangle marks this millennium of European history. The ever rolling and roiling triangle is made up of French, Germans and Italians. Italy symbolizes the Roman Empire. Rome is the seat of the Catholic Church whose organizational structure comes directly from that ancient empire.

But the Catholic Church also raises memories of splits. Western and Eastern Christianity split a thousand years ago. Largely northern Protestantism split from a largely southern Roman church five hundred years ago. There were many other kinds of splits. Cities in Italy split from each other during the Renaissance. Germany was split into hundreds of political units. And dominating much of Europe's history in this second millennium was the deep split between French-speaking France and German-speaking Austria.

These three peoples --- French, Germans, Italians --- emerged out of the debris of the Western Roman Empire in middle of the first millennium. The Italians sought to bring back the ancient empire through the Catholic Church. The French tried to do so by creating Europe's first state. The Germans were fired again and again by revolutionary dreams. The mix of these three peoples and their ideas turned out to be explosive again and again.

Europe's history at the political top doesn't augur well for unity. Neither does its history at the bottom. That history was dominated for a thousand years by what must be rated as one of the most unequal class systems in the world. For centuries peasants were virtual slaves dominated by great feudal lords. Prosperity did come in great trading cities. But soon enough the same feudal class divisions reappeared in those cities

Until recently most Germans, French and Italians were poor, peasant and despised. Now they are prosperous, middle class and respected. But below them is a fast rising new class of the poor in the form of Third World immigrants. The latest to come are Albanian refugees from Kosovo. With the exception of the Dutch the rest of Europe accepts the labor of the immigrants but won't let them enter their cultures. Once again the curse of European feudalism creates splits that suddenly appear even as conditions on the surface seem to be so prosperous.

There is a new reality in Europe. That reality is America and its new empire. Europe's proud and often arrogant political classes don't want to admit that they are just becoming vassals of this new empire. But in Washington they already are being so regarded.

Just a few days ago a Pentagon spokesman outlined a proposed new structure for the occupation of Kosovo. It consisted of five "peace-keeping" districts. Each would be occupied by one nation: American, British, French, Italian and German. A sixth was being kept in reserve for possible Russian occupation.

This is similar to the way a defeated Germany was occupied in 1945. There was a four-power "Komandatura" in Berlin consisting of America, Britain, France and the Soviet Union. Soon enough the USSR pulled out leaving America as the dominant power in West Germany. America then started planning for West European unity. The EU and the euro are products of this process.

Can a united Europe make it as a vassal of the American Empire? The Wall Street Journal thinks it's possible. It quotes Avinash Persaud, global head of research at the State Street Bank, as predicting the euro will gain strength "over years, not weeks."

A lot will depend on how NATO manages the recovery of Kosovo in the months and years to come.

For a long time I have been bullish on Asia and Africa as well as hopeful about the Middle East. But I have been bearish on Europe. And that is due mostly to the way I see its history. So I predict a further declining euro. However I would be happy to be shown that I am wrong. If Europe can escape its many curses as a vassal of America that would be a good thing for all of humankind.