The euro: breaking the spiral of silence

Germany’s elections are just around the corner. But if Chancellor Merkel gets her way, there will not be much to vote on. Voters may be given a choice on issues like nursery places, but not on fundamental issues such as the euro. For the euro is alternativlos (without any alternative), she says. The euro is Germany’s destiny, not Germany’s choice. Raising a discussion about alternatives is politically incorrect, because according to the official line, it could undermine the euro’s credibility. Any discussion on the euro, we are told, would be interpreted as weakness by speculators. They would sell euros en masse, and so indeed bring the euro to a collapse. Perseverance is propagated, even if the pursued policy is a dead end. The parliamentary opposition of Social Democrats and Greens blindly follows Merkel’s lead.

But stifling free thought is foolish. If the euro collapses anyway, it is precisely those previously suppressed ideas about alternatives that will be sorely lacking.

Where could help come from? From a free country such as the United Kingdom. When Europe lay in ruins after World War II, Sir Winston Churchill raised the vision of a United Europe in his Zurich talk of 1946. Today, it is the British Prime Minister David Cameron who rejects the delusion of a ‘euro fate’. Without explicitly referring to Merkel, he said in his 2013 New Year’s address: ‘The biggest danger to the European Union comes not from those who advocate change, but from those who denounce new thinking as heresy. In its long history Europe has experience of heretics who turned out to have a point. More of the same will not secure a long-term future for the Eurozone. More of the same will not bring the European Union any closer to its citizens. More of the same will just produce more of the same – less competitiveness, less growth, fewer jobs.’

But why are new ideas such as Cameron’s given such a hard time in Germany? The late Elizabeth von Noelle-Neumann, a pollster, got to the heart of the matter when she coined the term ‘spiral of silence’. Most of us fear the social stigma that defying a perceived consensus opinion often entails. Those who disagree with the consensus opinion will therefore tend to keep their doubts to themselves. As a result, the mainstream opinion will appear even more dominant than it actually is, and those who privately harbour doubts will feel more isolated than they actually are. This increases the likelihood that other ‘deviants’ also remain silent. And the spiral of silence keeps turning.

On the other hand, quite a few are paid handsomely (with public money) to support the mainstream opinion. The export industry benefits from the spiral of silence because the bailout credits to the Southern euro member states keep German exports running and farmers benefit because they associate the euro with stable prices and safe marketing of their products.

The German Institute for Economic Research (DIW) has launched a worldwide appeal in accordance with the federal government to support the ECB in buying bonds from ailing euro governments. This would, of course, come at the expense of financially sound governments. It represents a position which has no basis in economic theory.

233 economists have signed the call. But what is behind these signatures? Did the supporters mean to say that the purchase makes economic sense, thus revealing the gaps in their grasp of economic theory?  Or should we draw a distinction between foreign (4/5) and German subscribers (1/5), because only the latter are German taxpayers who have to carry lion’s share of the financial burden whereas the former, perfectly rationally, may say to themselves: Let the ECB shift the burden to Germany, it doesn’t hurt me, I am not a German taxpayer. It is barely accidental that of the about 100 members of the renowned German Public Finance committee, who were also invited to support the appeal, only one single person has signed.

Only if Germany credibly threatened to leave the euro could new alternatives emerge in the public debate. But as Merkel sticks to her obsession of the euro being ‘Germany’s destiny’, and is supported therein by her paladins, such a new idea is only feasible under a new Chancellor. Only then will the ‘heretics’ alluded to by Prime Minister Cameron effectively step in and insert new ideas into politics. For the time being, however, German voters are given the opium of a still restricted rate of inflation and a relatively low rate of unemployment. The fact that the German taxpayers ultimately have to pay for the bailouts to the peripheral states is delusively concealed.

However, the mainstream opinion promoted by Merkel, Schäuble & Co has a weak spot. The creeping poison disseminated by Cameron’s message cannot be halted. Sooner or later it will find its leakage and penetrate inexorably into the flesh and blood of the political establishment. A few brave souls have already gathered around Bernd Lucke, a Hamburg-based professor of economics. They are optimistic that in the long run, Cameron’s poison will be unstoppable, and set up a new political party, the ‘Alternative for Germany’ (AfD). They believe that German voters should not despair and subject themselves to Merkel’s will; rather, they should take matters into their own hands and forge their own currency.

The euro suffers from fixed exchange rates. These fixed exchange rates turn the euro into the equivalent of 17 cyclists mutually holding each other in order to prevent their collapse. The irony is that they are collapsing precisely because they hold on to each other so desperately. Therefore the new party takes up this politically incorrect issue, and shows how Europe can liberate itself from the chains of fixed exchange rates.

This is also a large research project, which faces an uphill struggle against all the state-funded pro-euro research, subsidised to the tune of millions and millions. But the supporters of the AfD do not give up. They believe that we must get out of the euro in the same way in which we got in: via parallel currencies. To recall: In the transition period leading up to the euro from 1999 to 2001, all euro member states had two currencies: their national currency for transactions in cash, and the euro for bank transactions. Now we have to go back the same way. We have to use the euro for cash transactions during the transition period and the new national currencies for bank transactions. The respective national monetary policy would maintain stability between the two currencies avoiding a bank run. In devaluing states, banks would have to be recapitalised and consolidated into a ‘bad bank’.

The official research refuses to even consider these questions. But its misses the point. On the one hand, it has become perfectly obvious that the euro model with 17 tied cyclists does not work. On the other hand the predecessor of the euro, the European Monetary System (EMS) with its fixed exchange rate bands and occasional adjustments of exchange rates, worked for over 20 years (and thus longer than the euro). It was only discarded for political reasons. If, however, the present value of a reanimated EMS is larger than the present value of the euro, the argument of excessive exit costs fails to convince. The challenge lies in finding the least costly exit route. But such ideas are currently choked under the weight of the public opinion. The spiral of silence is turning.

But the situation is not hopeless. A mainstream opinion based on intimidation of non-mainstream thoughts is a giant with feet of clay. Spirals of silence have been broken before, and we know from experience that once the first cracks appear, the collapse of a seemingly unshakable mainstream opinion can happen astonishingly fast.

Prof. Dr. Charles B. Blankart is a professor of economics at the Humboldt University Berlin and the University of Lucerne.