Historian Eric Hobsbawm, who died at the age of 95 on Monday, had the advantage of living through many of the momentous events he wrote so eloquently about. But his strength as a chronicler of the world’s major turning points was not derived just from his firsthand experience. It was Hobsbawm’s fine ability to understand and explain the context and consequence of developments that made him stand apart as one of the world’s great historians.
The analysis provided by Hobsbawm in the masterful “Age of Extremes” — an account of the turmoil that shaped the world between 1914 and 1991 — comes to mind in this era of uncertainty we’ve entered. Yet, despite the obvious connections that can be drawn between the failures of today and other periods of our relatively recent history, policymakers are showing an alarming disregard for the past. Hobsbawm would not have been surprised by this myopia. Writing in “The Age of Extremes,” first published in 1994, he lamented that history was so often expunged from people’s minds.
“The destruction of the past, or rather of the social mechanisms that link one’s contemporary experience to that of earlier generations, is one of the most characteristic and eerie phenomena of the late 20th century,” wrote Hobsbawm. “Most young men and women at the century’s end grow up in a sort of permanent present lacking any organic relation to the public past of the times they live in. This makes historians, whose business it is to remember what others forget, more essential at the end of the second millennium than ever before.”
Several times during the past few years, decision makers have failed to look to history for the warning signs that may have averted the financial and economic crises we’ve suffered, or at least moderated their impact. The stock market bubble that triggered the crash of 1929 did not serve as a forewarning for the subprime mortgage fiasco in the USA, for example. In the case of Europe, having embarked on a decades-long project aimed at overcoming the divisions that led to two devastating wars, insularism is again threatening to pull things apart.
The gap developing between Europe’s core and periphery became glaringly obvious over the past few days. Protests in Greece, Spain and Portugal were a reminder that many people in those countries are seething. The unemployment figures published this week by Eurostat, showing the jobless rate almost as high as 25 percent in Greece and Spain and as low as 5.5 percent in Germany and 4.5 percent in Austria, were a clear indication of the level of disparity being created — a breeding ground for anger and resentment.
However, at this crucial moment in its history, Europe has backed itself into a corner. Lacking the courage and insight to get a hold on the crisis at its outset, it allowed events to develop into a morality play in which the South plays the reckless grasshopper to the North’s frugal ant. This, despite the fact that the roots of its difficulties lay in a series of serious economic and political errors on a variety levels rather than in cultural traits. While many of the core European countries benefited from reforming their economies during the bumper years, the failure of the peripheral nations to do so and instead get sucked into making catastrophic mistakes is not unprecedented. It is a feature of Europe’s history.
As many in Europe stare at their own version of the Great Depression, it is worth remembering we have been through much of this before — not just the suffering but the errors that led to it. Another historian, Liaquat Ahamed, chronicles the story of the global demise in the 1920s brilliantly in “Lords of Finance,” which focuses on four central bankers at the heart of developments.
One of many parallels drawn between that period and today’s events in Europe is how victorious allies pushed Germany beyond breaking point with their demands for reparations and how fierce pressure is now being exerted on bailout countries, Greece in particular. Another comparison that can be made is between the strict economic orthodoxy of the central bankers and politicians in the 1920s and the rigidity with which the European Central Bank and some of the eurozone’s key players have approached the debt crisis.
However, there is another interesting parallel to be found in Ahamed’s book. It lies in his description of how the Dawes Plan, which lightened the reparations load on Germany in the 1920s, precipitated a lending boom that eventually contributed to the country’s economic collapse.
“American bankers, assured under the plan of being repaid first… had fallen over one another in their enthusiasm to lend to Germany. Some of this money had gone to finance the reconstruction of industry; but a very large amount had been taken up by the newly empowered states, cities, and municipalities of the budding democracy to build swimming pools, theaters, sports stadiums and even opera houses. The zeal with which foreign bankers promoted their wares led to many imprudent investments and a lot of waste,” writes Ahamed.
“With so much money coming in, imports ballooned and the pressure of the government to lighten up on the austerity of 1924 and 1925 became irresistible. By 1926, the national government itself was running deficits.”
Shortly afterward, the Dawes Plan collapsed, funding dried up and the German economy tipped back into a devastating recession with political consequences that even the most historically ignorant should be able to recall.
The tale of Germany’s roller coaster ride through the 1920s bears many similarities to Greece’s first decade in the euro, when the cost of borrowing became attractive and governments could not resist turning to the markets for extra funding. The money they borrowed was not put to good use. Instead, it funded a rise in consumption and, in turn, went toward paying for more imports.
Between 2000 and 2009 Greek governments borrowed about 160 billion euros on international markets, which took the general government debt from 140 billion euros in 2000 to 300 billion in 2009. At the same time, credit expansion accelerated at a breakneck pace. Credit to individuals went from approximately 13 percent of GDP at the start of 2001 to 52 percent of GDP at the end of 2009. This was largely due to a combination of housing loans that fed the property boom and consumer loans that diverted demand to imports, which jumped from 52.28 billion euros in 2000 to 89.8 billion at the 2008 consumerism peak.
This aspect of the Greek problem is often overlooked in favor of more culturally related aspects, such as working hours, holiday time, civil servant numbers, tax evasion and corruption, all of which played their part but don’t account for the full story. Yet, in ignorance of the continent’s history, some European leaders have chosen to use cliches, stereotypes and sophisms to explain the roots of the crisis to their people. But this is now catching up with them. Europe is rapidly moving toward its moment of truth, as echoes of its past begin to ring out. In Spain, friction between the regions and central government has re-emerged, in Portugal people have taken to the streets to make it clear they’re reaching their limits, while in Greece fascists are roaming the streets usurping authority, attacking minorities and offering to find Greeks work.
The darkness that is spreading across Europe has to be stopped and looking to our history offers as good a hope as any to realize the perils of failing to act decisively. In the concluding sentence of his autobiography, “Interesting Times,” Hobsbawm wrote: “Still, let us not disarm, even in unsatisfactory times. Social injustice still needs to be denounced and fought. The world will not get better on its own.» It will certainly not improve if we continue to ignore our history.