From The Kingdom Of The Two Sicilies To Iceland

A couple weeks ago David Frum was in Naples and tweeting away how it was what we all have been taught to believe are the "industrious" Northerners who robbed the southern Italians of their glorious past as the economic powerhouse of the region. There were a whole spate of tweets spread of a couple days like this one:


And I just found a solid post he did about it at the Daily Beast, one that challenges the northern European racial stereotypes of southern Europeans as "lazy" and "shiftless"-- and, of course, blaming the eurozone's economic troubles on them (and the southern Irish?). He took issue with a British article, All the bail-out systems under the sun cannot make the eurozone work largely because of its racist suppositions, which he points out as false-- as anyone aware of the history of the Kingdom of the Two Sicilies, the largest and wealthiest Italian state before unification, would know, not to mention the era of Spanish domination of Europe... and beyond. "Yet even continued gifts under some sort of fiscal union," posits the Telegraph "would not bring prosperity, as we see clearly in Italy. Italian unification in 1861 married the Germanic north with the Latin south. The consequent misalignment continues to this day."

Notice how in this story, the northern half of Italy gets temporary promotion to honorary Aryan status-- to be retracted, of course, if and when Italy as a whole must be compared to Germany. (It's never clear why Germany does not get the same treatment in comparison to the even more northerly Denmark-- or why the fair-skinned Irish should exhibit the same economic behavior as the lesser breeds around the Mediterranean.)

It is true that Italian unification has important lessons for all Europe, but not those the Telegraph writer thinks. At the time of unification, Naples was leading Italy's way to industrialization. The North was comparatively laggard. Unification changed all that, by enabling the conquering North to impose its preferred monetary and trade policies on the whole peninsula. (David Gilmour's The Pursuit of Italy is especially lucid on this point.)

Now we are seeing the same pattern recur continent-wide. The key thing to understand about the Euro is that it presented Germany with a hidden devaluation of the Deutsche Mark and southern Europe with a windfall up-valuation of their local currencies. The Euro incentivized Germany to export more; southern Europe-- plus Ireland-- to borrow and consume more. The present crisis is composed of the after-shocks.

Europe's problems were made by Europeans jointly. The Germans are every bit as much the architects of the impending disaster as the Spaniards and Italians. It's pure demagoguery for German politicians to present their country as a victim of policies that over the post 10 years enabled Germany to overcome its own history of overpaid labor and over-rigid work rules, and-- via a new currency regime-- to muscle aside all other European producers on world export markets. It's excessively credulous for outside observers to accept these claims of German victimhood, and much worse for them to concoct pseudo-ethnic rationalizations for such credulity.

Yes, before the superior "Germanic" Italian unified the peninsula, Naples was the biggest city it Italy and third biggest in Europe. The city had the most theaters and the most music schools. It also had the first railroad in Italy-- and the world's first railroad tunnel-- and built and operated the first steamship in the Mediterranean. Of the 8 states that made up Italy before unification, the Kingdom had over 65% of the currency in circulation. Tell it to the Umberto Bossi, Lega Lombarda or the Northern League; it doesn't fit their narrative.

Every time the German people-- not the Italian ones; the real deal up north-- have had the opportunity to express their opposition to Angela Merkel's pan-European austerity agenda, they have. Her center-right party keeps losing elections. In fact, they're losing in states that have been electing rightist governments going all the way back through Hitler. Germany has profited most handsomely of any nation from the eurozone. They've lent other countries plenty of money to buy German products and Germany industry has come to dominate the continent. Now the collapse of the euro is starting to not just look inevitable but to look to the German people like it's something to strive for, as a poll in Spiegel pointed out this week. Germans don't want any more of Merkel's bailouts, even if it means the breakup of the eurozone-- ad regardless of what austerity measures she can wring out of her hapless victims.

Europe is now in the third year of its sovereign debt crisis and the prospect of a breakup of the single currency no longer seems as farfetched as it once did. But from the perspective of most Germans, the euro crisis is still something that mainly affects other countries, namely Greece, Spain, Portugal, Italy, Ireland and now Cyprus.

But although the German economy has shown itself to be surprisingly robust, with unemployment falling and tax yields rising, Germany will not be able to withstand the negative trend in the euro zone for ever. "The crisis in the euro zone is catching up with the German economy," commented Ferdinand Fichtner, chief economist at the German Institute for Economic Research, earlier this week. Indeed, the institute has just dropped its growth forecast for the German economy for 2013 from 2.4 percent to just under 2 percent.

...On the question of the single currency and its survival, the majority-- 54 percent-- believes that Germany should not continue to fight to save the euro if it has to provide additional billions in aid. A sizeable minority (41 percent) disagrees, however, while 5 percent are undecided.

The survey revealed that this skepticism is shared by Germans of almost all political affiliations. Among respondents who support Angela Merkel's conservative Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), 52 percent said it was almost pointless for Germany to continue fighting for the single currency, while 45 percent disagreed. The figures are similar among supporters of the opposition center-left Social Democratic party (54 percent versus 43 percent), which has generally supported Merkel in her efforts to fight the crisis.

The greatest skepticism was found among supporters of the far-left Left Party, 68 percent of whom felt it was pointless to keep fighting to save the euro. The most pro-European tendencies were found in the camp of the environmentalist Green Party. There, 64 percent thought Germany should keep trying to rescue the monetary union.

Is there an alternative to Austerity? Of course. It's called growth and it's what's been happening in Iceland, the little country far to the north of Lombardy, Piedmont and Deutschland.

For a country that four years ago plunged into a financial abyss so deep it all but shut down overnight, Iceland seems to be doing surprisingly well.

It has repaid, early, many of the international loans that kept it afloat. Unemployment is hovering around 6 percent, and falling. And while much of Europe is struggling to pull itself out of the recessionary swamp, Iceland’s economy is expected to grow by 2.8 percent this year.

“Everything has turned around,” said Adalheidur Hedinsdottir, who owns and runs the coffee chain Kaffitar, the Starbucks of Iceland, and has plans to open a new cafe and start a bakery business. “When we told the bank we wanted to make a new company, they said, ‘Do you want to borrow money?’ ” she went on. “We haven’t been hearing that for a while.”

Analysts attribute the surprising turn of events to a combination of fortuitous decisions and good luck, and caution that the lessons of Iceland’s turnaround are not readily applicable to the larger and more complex economies of Europe.

But during the crisis, the country did many things different from its European counterparts. It let its three largest banks fail, instead of bailing them out. It ensured that domestic depositors got their money back and gave debt relief to struggling homeowners and to businesses facing bankruptcy.

...Icelanders said that they had stopped feeling ashamed and isolated, the way that they did during the worst of the crisis, when their country was portrayed as a greedy and foolish pariah state and its British assets were frozen by the British government using the blunt and humiliating instrument of antiterror legislation.

“We went through this complicated and terrible experience and were in the center of world events,” said Kristrun Heimisdottir, a lecturer in law and jurisprudence at the University of Akureyri in northern Iceland.

She compared Iceland’s shame to that of a private person thrust onto the front pages by a lurid scandal. “It might take 20 years to recover from the stress and humiliation of having their personal life paraded before the world,” she said. “But it turned out that what happened to us was a microcosm of the whole crisis.”

Some Icelanders say they have been soothed, too, by the country’s bold decision to initiate an extensive criminal investigation into the financial debacle. Many members of the old banking elite have been identified as possible suspects, and some of their cases are beginning to come to trial; several people were convicted of financial crimes last month.

Jailing banksters is certainly the best way to start healing any society that has been ravaged by them. The U.S. and Europe haven't even begun to learn that yet. There'll be plenty of more ravaging to come.