I will not vote in today's European election. Instead, I am doing something much more interesting and relevant to the future of Europe and Britain. I am travelling to Riga to speak at the centenary celebrations for Isaiah Berlin, the great Latvian- Jewish philosopher, who explained why democracy and freedom do not always work hand in hand. Why is this trip to Latvia more important than voting? Because, believe it or not, the future of Europe could be decided by this tiny Baltic state.
Before explaining why this is so, allow me another digression - about a remarkable TV documentary to be broadcast on June 19 on BBC Two. Linked to another cultural centenary - that of Felix Mendelssohn - it is called Mendelssohn, the Nazis and Me. This film, charming, hilarious and horrifying in equal measure, is about the bizarrely legalistic efforts of the Nazis to expunge all traces of Jewish pollution from Germany's music culture, as well as the population, in the 1930s - and more generally about the sudden descent of one of the world's most highly educated and civilised nations into a state of collective insanity. Specifically the film is about bureaucratic attempts to determine whether Mendelssohn's German descendants were more or less “Jewish” than his music - a literally life-and-death issue that rested on the Nazi authorities' inability to establish whether the exact proportion of Jewish heredity in the Mendelssohn family was one-quarter or three-sixteenths.
What does this nightmarish experience, which ended luckily for Mendelssohn's descendants, have to do with the future of Europe? Plenty - and the connection runs through tiny Latvia, where I am writing this.
Europe is now in the middle of a perfect storm - a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.
Latvia, partly because it has followed an Argentine-style policy of “fixing” its exchange rate and encouraging its citizens to borrow in euros and Swiss francs, is now in the front line of the battle between governments and financial markets - and a humiliating devaluation looks increasingly likely. Last weekend a former Swedish finance ministry official brought in by the Government as an adviser admitted that devaluation was no longer a matter of “if” but of “when and how”. If Latvia does devalue, then the two other Baltic states will almost certainly be forced to follow and the panic will probably move to Romania and Hungary. Beyond that, the contagion is likely to spread to the weakest members of the eurozone - Ireland, Greece, Portugal and probably Austria.
If the crisis expands, other EU governments - and especially Germany's - will face an existential question. Do they commit hundreds of billions of euros to guarantee the debts of fellow EU countries? Or do they allow government defaults and devaluations that may ultimately break up the single currency and further cripple German industry, as well as the country's domestic banks?
Publicly, German politicians have insisted that any bailouts or guarantees are out of the question. Germany has vociferously blocked proposals from Italy, Spain and the European Commission for the EU as a whole to issue bonds and use the proceeds to support the governments with weaker credit. But as so often in Europe, the pass has been quietly sold in Brussels, while politicians loudly protested their unshakeable commitment to defend it.
Last October a previously unused regulation was discovered, allowing the creation of a €25 billion “balance of payments facility” and authorising the EU to borrow substantial sums under its own “legal personality” for the first time. This facility was doubled again to €50 billion in March. If Latvia's financial problems turn into a full-scale crisis, these guarantees and cross-subsidies between EU governments will increase to hundreds of billions in the months ahead and will certainly mutate into large-scale centralised EU borrowing, jointly guaranteed by all the taxpayers of the EU.
This policy of “fiscal federalism”, long advocated by France and high-debt countries such as Italy, Spain and Greece, has been fiercely opposed by Germany and Britain. In terms of its potential costs, it makes the agricultural policy and budget rebates seem like a vicarage tombola.
How could German politicians accept such a policy, having repeatedly sworn to oppose it, without sacrificing their unbending sense of moral righteousness? And how can they pervert democracy by telling their electorates that they are doing one thing, while advocating the exact opposite within the EU?
Much as they did in the case of Mendelssohn and the Nazis, the Germans focus on the letter of the law when they cannot bear to think about the spirit of the rules they are applying - whether unspeakably evil, as in the 1930s, or merely profligate and dishonest, as in the EU today. The new EU borrowing, for example, is legally an “off-budget” and “back-to-back” arrangement, which allows Germany to maintain the legal fiction that it is not guaranteeing the debts of Latvia et al. The EU's bond prospectus to investors, however, makes quite clear where the financial burden truly lies: “From an investor's point of view the bond is fully guaranteed by the EU budget and, ultimately, by the EU Member States.”
And so the juggernaut of euro-federalism rolls on; but viewed from an increasingly liberal central Europe, there is a great consolation: the history of euro-federalism keeps being repeated but, as Marx once said, what began as tragedy tends to end in farce.
Surely the best thing for Latvia is a massive devaluation - this is exactly what the UK has done and so far its worked very well - this is the great benefit of retaining one's own currency - the only alternative is to cut jobs and wages and increase taxes as Ireland is now having to do!
patrick, brighton, UK
Amputtaion is the only solution. Countries like Latvia should have never been admitted to the EU in the first place. Germany simply can't afford to bail anyone else out.
Homer, Nidderau, Germany
The political & financial authorities will place any burden upon the backs of an unwary and unknowing electorate so long at the burden is a complete transfer of responsibility from those that created the crisis to those that must pay for it. The citizens that followed the rules.
Paul Walker, Memphis, TN, USA
So who actually runs europe? Elected or unelected people?
Arthur, Newcastle,
this is a generation crucifying event - the last one was the Versaille Treaty and look where that ultimately led. Russia will use its mineral assets to re focus eastern Europe away from the EU causing the EU to support these countries to survive or we have European meltdown and RUssian ascendancy.
pat, London,
"We" do not know any details, but big schemes are "in the air". Not until elections in september...
Peter, Berlin, Germany
Good, let's hope the EU succeeds in its strategy. The maintenance of financial stability in all states of the EU is of great importance, given that a United Europe guarantees peace and prosperity for hundreds of millions of people in and outside of Europe
James Wellings, Bangkok, Thaialnd
The question I can't find the answer to is why the Euro remains so strong if all its constituent economies are in the dire straights described. Surely it should sink like a stone (and thus boost the troubled economies).
Nick, France,
The real danger is printing 'funny money' will lead to protectionsism with a 3 tier Europe. The Eurozone may retaliate in the race to the bottom with the printing presses or it may have exchange tariffs for those that wish to trade. This would end the 'free market' as we know it & damage UK PLC.
Stephen Marchant, Newton Abbot, UK
Sadly, the divide between Europe's political class and those they pretend to "serve" is far wider even than in the UK. Those who sought European integration to avoid the horrors of the 20th Century should really be extremely worried now. Democracy is beginning to fail once again it would seem.
f redpath, London,
We need to ditch our euro bonds now that the government bought from the sale of our gold reserve? UK first the continent second.
bill, Liverpool, UK
Anatole, save yourself the money and take a trip to Dublin instead because the only way the Irish economy can be saved is by the Germans bailing it out.
Paul, Coventry,
How long before the euro collapses and governments resort to their traditional currencies. I am sure the Germans have this dream of a strong mark again.
Peter H, Auckland,
Who exactly is going to loan billions of Euros to the EU? Would these bonds be of any value if the EU were to disintegrate?
Jonathan, NYC, USA
So the EU will in fact hold the mortgages on all these countries. When will they foreclose?
steve, Christchurch,
Please note the maximum number of characters is 300.
* Name
* Town
Country
* Required
Remember me
Terms and conditions Print Email Post to del.icio.us Post to Fark Post to Yahoo! Post to Digg Also in Anatole Kaletsky The great bailout - Europe's best-kept secret Has the threat of a Great Depression vanished? America sneezes and the world is germ-free Also in Columnists Kim Jong Un named as the successor to Kim Jong Il in North Korea Barack Obama must confront democracy dilemma in Cairo speech Tony Blair makes his case for optimism in the Middle East Times Recommends Vote Labour, vote mayhem The great secret EU bailout Time's ripe to end Arab-Israeli conflict
OUR COLUMNISTS
Columnists
Select David Aaronovitch Anjana Ahuja Chris AyresJoan BakewellSimon BarnesCherie BlairCamilla CavendishJeremy ClarksonRobert CramptonDaniel FinkelsteinMichael GoveSimon JenkinsRachel JohnsonAnatole KaletskyIndia KnightDominic LawsonRod LiddleMagnus LinklaterBen MacIntyreBronwen MaddoxMinette MarrinCarol MidgleyAlice MilesCaitlin MoranRichard MorrisonMatthew ParrisMichael PortilloLibby PurvesWilliam Rees-MoggMelanie ReidPeter RiddellHugo RifkindSathnam SangheraGraham StewartAndrew SullivanRachel SylvesterJanice TurnerGuest contributors
Blogs
Select Alpha Mummy Archive Blog David Aaronovitch Asia Exile Baby Barista Blockbuster Buzz Gerard Baker Charles Bremner Big Brother Mary Beard Comment Central Consumer Central Cricket Blog Eco Worrier Faith Central Fashion Formula One Ruth Gledhill Inside Iraq Ariel Leve India Knight Money Rafael Nadal News Blog William Rees-Mogg Rugby Sinofile Mick Smith Sports Commentary Irwin Stelzer Peter Stothard Surf Nation Technology Travel Urban dirt Video Wimbledon
Anatole Kaletsky
Anatole Kaletsky writes for The Times Comment pages on Thursdays. One of the country's leading commentators on economics, he was formerly Economics Editor and is now Editor-at-large of The Times. He has won many awards for his financial and political journalism. Before joining The Times, he worked for 12 years on the Financial Times
Read more from Anatole Kaletsky Camilla Cavendish wins award for family justice campaign
Columns urging greater openness in family courts win Paul Foot Award
Cartoon More cartoons Peter Stothard
The Editor of the TLS writes on books, people and politics
A Don's Life
Mary Beard of Cambridge and the TLS on culture ancient and modern
Will the PM fall?
A rolling guide to the absolute latest insider stories and gossip - official and unofficial
Comment Central Award-winning Iraq coverage from Deborah Haynes
A series on the plight of Iraqi interpreters took the Tony Bevins Prize for investigative journalism
MOST READ MOST COMMENTED MOST CURIOUS Most Read Skip Most Read Today Air France Flight 447 'may have stalled at... The Top 50 Manchester United players Rock crumbles and Sir Alan Sugar’s... Blunders revealed as Dano Sonnex and Nigel... MOST COMMENTED Skip Editor's Pick Today Royal Navy captures Somali pirates... and... The plot thickens: Hazel Blears resigns, and... Mystery of why Flight 447 crashed may never... Air France Flight 447 'may have stalled at... MOST CURIOUS Skip Most Curious Today French stars of tropical island reality show... England football supporter shot for... Witch bottle is uncorked to discover... George Orwell’s monotonous voice... Focus Zone Northern Lights:
Win a luxury weekend to Newcastle and its neighbour Gateshead, find out more here
Business Solutions:
Risk, resilience and embracing new technology
Need to Know:
Industry sectors news at a glance. Interactive heatmap, video and podcast
Business Wisdom:
Discover the collective power of smart thinking. Submit a solution and be in with a chance to win a Flip MinoHD Camcorder
Social Entrepreneurs:
The inside track on current trends in the charity, not for profit and social enterprise sectors
Business Travel:
Everything the Business Traveller needs to know to make a better trip
Great British Summer :
Make the most of the summer and enter our fabulous photographic competition, you could win a �5000 holiday
More reports:
Enjoy further reading from Travel to Fashion, Business to Sport, discover more
Northern Lights Business Solutions Need to Know Business Wisdom Social Entrepreneurs Business Travel Great British Summer More reports Find a Lawyer
Cut your legal costs
Free CV Review
Sell yourself! Have your CV reviewed by experts
Births, deaths, marriages
Place your announcement
Announcements
Search The Times Births, Marriages & Deaths
Crossword Club
Sign up today or try one of our free demo crosswords
Online Sudoku with daily prizes Popular Searches on Times Online bollywood news | britain's got talent | chess | dating | fashion | mortgages | movie trailers | music | podcasts | recipes | redundancy | savings | slumdog millionaire | star trek | sudoku | twilight | university guide | wine
Shortcuts to help you find sections and articles
Classifieds Cars Jobs Property Travel Cars Skip Cars of the Week Motorati
Finding the best deal on a new car
Jaguar E-Type
1973 42,995
Rolls-Royce Phantom Drophead Coupe 2dr Auto
2008 249,500
Great car insurance deals online
Car Insurance
Search for more cars and bikes Jobs Skip Jobs of the Week Senior Financial Consultant
Unlimited earnings potential Nationwide Throughout the UK
Senior Fellows
The Institute for Government London
Director of Strategy and Stakeholder Relations
from £70k upwards plus benefits, flexible PhonepayPlus South London
Chief Executive
Six Figure NSAP West Midlands
Search more Jobs Properties Looking to Buy? Looking to Sell? Kinleigh Folkard & Hayward
Completely London
Rushmore Condo's
Luxury Condo's in Manhattan with NYC views
South Africa - Cape Town
World Cup Investment Opp - 2 bed gated apartment
Times Online Property Search
Nationwide
Search for more properties Holidays Skip Travel of the Week Experience 14 nights in Tobago
With Golden Caribbean For just £619pp
Leave the queues behind at the airport
and do the British Isles this Summer. Save up to 60% with Oxford Hotels and Inns
Bored of life?
Try our inspiring luxury holidays to the Indian Subcontinent and South East Asia. Great offers available
Canada for Less.. fly from £129 one way inc taxes
8 fabulous Canadian cities ...you won’t find cheaper
Search for more holidays Place your advert now
Search Ad Reference:
Where am I?
Home Comment Columnists Anatole Kaletsky Contact us Back to top NewsCommentBusinessMoneySportLife & StyleTravelDrivingArts & EntsArchive Times Online Times Archive Google
Contact our advertising team for advertising and sponsorship in Times Online, The Times and The Sunday Times, or place your advertisement.
Times Online Services: Dating | Jobs | Property Search | Used Cars | Holidays | Births, Marriages, Deaths | Subscriptions | E-paper
News International associated websites: Globrix Property Search | Property Finder | Milkround
Copyright 2009 Times Newspapers Ltd.
This service is provided on Times Newspapers' standard Terms and Conditions. Please read our Privacy Policy.To inquire about a licence to reproduce material from Times Online, The Times or The Sunday Times, click here.This website is published by a member of the News International Group. News International Limited, 1 Virginia St, London E98 1XY, is the holding company for the News International group and is registered in England No 81701. VAT number GB 243 8054 69.
Read Full Article »
