Egyptian Protests -- A Backgrounder

Egyptian Protests Grounded in Decades of Struggle; Portend Regional Transformation

Max Ajl, Truthout, 03 February 2011

http://www.truth-out.org/print/67425

Egypt is throbbing with resistance. Cairo is cloven between the forces of revolution and those of counterrevolution. Hundreds of thousands of people - on Tuesday, February 1, well over a million - have been streaming each day into Tahrir Square, the largest plaza in the Arab world, located in the heart of downtown Cairo. Army tanks line the streets, helicopters and F16s buzz overhead, and pro-Mubarak demonstrators, many of them hired thugs, bloodied thousands of protesters yesterday in Tahrir and elsewhere. Yet the people keep pushing for Egyptian dictator Hosni Mubarak's unconditional ouster, and not just in Cairo. Alexandria has been convulsed, while Suez, a small city abutting the Suez Canal, has been riven with some of the fiercest street battles between the police and protesters, while workers there have gone on strike, demanding that Mubarak step down from his palace in Heliopolis.

In response to rising rage, Mubarak addressed the Egyptian people on Tuesday, February 1, and promised to step down in September, stating that his "first responsibility now is to restore the security and stability of the homeland, to achieve a peaceful transition of power," assuring the crowds that he "was not intent on standing for the next elections" anyway.

Barack Obama, in reply to Mubarak's promise to slowly relinquish his grip on power, said that after his address he had spoken "directly to President Mubarak. He recognizes that the status quo is not sustainable and that a change must take place ... an orderly transition must be meaningful, must be peaceful and it must begin now." Clearly, Mubarak and Obama are coordinating their communications, as well as their strategies. They should be: Egypt receives $1.3 billion of military aid each year to make sure it follows American orders. [continued]

Madison's Nightmare: How Much Should We Spend for National Insecurity?

Chuck Spinney, www.theatlantic.com, 3 February 2011 

(Guest posting on James Fallows, theatlantic.com blog)

http://www.theatlantic.com/politics/archive/2011/02/madisons-nightmare-how-much-should-we-spend-for-national-insecurity/70687/

On 4 August 1822, James Madison wrote a letter to W.T. Barry about the importance of popular education and, by inference, the importance of the relationship of the First Amendment to the task of holding an elected government accountable for its actions.  He concluded his opening paragraph, setting the tone for the entire letter, by saying,  "A popular government without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy, or perhaps both. Knowledge will forever govern ignorance, and a people who mean to be their own governors must arm themselves with the power which knowledge gives." 

Nowhere is the farce and tragedy feared by James Madison more evident than in the national debate over if, or how much, the defense budget should be cut back as part of our efforts to reduce the deficit.  With the defense budget at war with Social Security, Medicare, and needed discretionary spending in education, investments in infrastructure, and elsewhere, it is a tragedy that must be undone if we are to protect our middle class way of life. 

A recent Rasmussen poll of 1,000 likely voters illustrates the farcical aspects of the defense debate.  Rasmussen asked two question that concern us here:

1. Does the United States spend too much on the military and national security, not enough, or about the right amount? Answers: 

• Not enough: 27%
• About right: 37%
• Too much: 32%

2. To ensure its safety, should the United States always spend at least three times as much on defense as any other nation?

• Yes: 25%
• Not sure: 35%
• No: 40%

An earlier poll by Rasmussen, conducted just over 2 months ago on 27 November 2010, found that only 58% of the people thought the United States spends more on defense than any other nation in the world. 

So, to the extent that these polls reflect what Madison called popular knowledge and the means for acquiring it, they can be summarized as follows: 64% of the people think the defense budget is "about right" or too small, but only 25% think we should three or more times as much as any other nation, while 58% think we are spending more than any other nation.  

Let's see how this popular knowledge matches up to reality.   

First, how large is the current Fiscal Year 2011 defense budget?   

Rasmussen's report tries to shed light on this question by saying the total defense budget is estimated to be about $719 billion, but acknowledges that this number does not include veteran's care, which amounts to $124 billion, implying a total of $843 billion.  These budget numbers are misleading, however, because they are outlays, and as such, they represent the result of several budgets.  Moreover, these numbers are not inclusive.  

Outlays measure the amount of money the Pentagon is spending, not what Congress has authorized it to spend.  There are two measures of authorization: TOA (Total Obligational Authority) and BA (Budget Authority).   

The differences between TOA and BA are technical and small, and most people use BA to measure the size of the defense budget.  BA is the amount of money Congress gives to an agency each fiscal year.  It can be thought of as the annual deposit in that agency's checkbook.  The money in a given year's BA is often spent over a period of years (in the case of a new aircraft carrier, that period could be as long as 10 years), so 'outlays", like Rasmussen is quoting, in a given year, can include BA appropriated from Congress in several earlier years as well as the current year.  Debates over the appropriate size of defense budget (often referred to in shorthand as 'spending,' as appears to be the case in Rasmussen's questions) are really about how much BA should Congress appropriate each year.  

This question of new BA is at the heart of the political issue concerning the Pentagon's contribution to deficit reduction, for example. 

The appropriate budget total (BA) for the 2011 Defense Department's budget (budget category 051) -- $712 billion -- can be found in Table 5.1 in the historical tables  of the current President's Budget (051 outlays appears to the be number Rasmussen is using).  

Some additions to the DoD budget are quite obvious and are clearly laid out in Table 5.1.  For example, Table 5.1 adds the $18.8 billion appropriated for the Energy Department's (category 053) nuclear warhead program and $7.6 billion for the direct defense related activities of other agencies (category 054).  These direct additions yield the President's estimate of total BA for national defense of $738.7 billion, or $20 billion higher than Rasmussen's estimate.  This should be considered the lower bound of any estimate for the current defense budget. 

The Rasmussen report, correctly in my opinion, implies budgets to support veterans should also be included when comparing total US defense budgets to those of other countries.  But this addition is only one of many.  The table below was compiled by friend Winslow T. Wheeler, who spent many years as a staffer on Senate Budget Committee trying to sort out how much we actually spend on defense.  Note that the "National Defense Total" is the same as that in Table 5.1 of the Presidents historical tables.  As you can see, the entire picture is quite complex, but adding in indirect defense induced/related budgets results in an annual security budget of just over one trillion dollars for 2011.

How Large is the Defense Budget?

Source: Winslow T. Wheeler, Director Straus Military Reform Project, Center for Defense Information 

So, in answering the first question: how large is the current defense budget?   Reasonable estimates place it between $739 billion and one trillion dollars for 2011 -- take your pick.   

According to Rasmussen's poll, 64% of the people think this is about right or too small, and only 58% think this range is more than that of other nations.  This brings us to the second question: How does our defense budget compare with the defense budgets of other nations?   

The most recent estimates for China and Russia, the nations with the next two largest defense budgets, compiled by the Stockholm International Peace Research Institute (SIPRI) are for 2009.  If one assumes that recent growth rates continued through 2010 and 2011, and we added in estimates for the effects of inflation, the estimate for China's current  defense budget would rise to $125 billion and that of Russia would rise to $69 billion.  Bear in mind, these are very rough estimates, but this estimate for China's is higher that that used by Rasmussen, and therefore more conservative in a comparative sense.   

These numbers tell us that the US defense budget is between six and eight times as large as that of the next largest nation. (Bear in mind, we are ignoring the contributions of our Allies in NATO, Japan, etc.)  Note that only 25% of the likely voters interviewed think we should spend more than three times as much as the next largest nation, but at the same time, 64% think the current budget is about right or too small.  One wonders how this response would have changed if Rasmussen asked the real question: Do you think we should continue to spend between six and eight times as much as the next largest nation? 

Are you beginning to get a feel for how cognitive dissonance creeps in to shape the debate over the defense budget? 

The people whose opinions are being sampled have good reason to be confused.  In fact, their cognitive dissonance reflects a tiny tip of the iceberg that is Madison's nightmare. On 26 January, that farce-tragedy mutated into a comic opera.  

First a little background. 

For years, Pentagon decision makers have admitted, and members of Congress have understood, the Pentagon can not keep track of the money Congress authorizes it to spend, for the simple reason that the Pentagon's bookkeeping systems are an un-auditable shambles.  This is an old problem that I, among others, have been writing about since the late 1970s. Auditability and transparency go to the heart of the idea of a representative republic.  A government of the people, by the people, and for the people must be answerable to people. 

That is why accountability is an absolute requirement of the Accountability and Appropriations Clauses of the Constitution, which assign the power of the purse to Congress.  This was made an explicit legal requirement by the enactment of the Chief Financial Officers Act of 1990, which required the Inspector General of each agency in the Federal government to certify that its agency was in fact accounting for the funds Congress gave it. 

Yet to date, the Pentagon has been unable to comply with the requirements of this law.  I testified about this problem many times to Congress -- and I refer interested readers to my last statement to Congress in June 2002, which pretty well summed up this mess, describes its ramifications, and describes one pathway toward fixing the problem.  My sources in the Pentagon tell me the situation is worse today than it was in 2002. 

The Pentagon leaders in successive administrations have addressed this problem by urging patience, telling Congress repeatedly the Pentagon has a plan in place to solve the audit problem.  That is true, the Pentagon does have a plan, but it is what we in Pentagon used to call a 'cape job', because decision makers in successive administrations keep moving its deadlines further into the future.  Obama's Pentagonists are just the most recent in a long line of snake oil peddlers.  John Hamre, the Comptroller and Deputy Secretary of Defense during the Clinton Administration, for example, promised to fix the problem by 1996.  After a couple of stretch outs in the Bush Administration, Obama's minions are continuing the scam by 'promising' to "fix" the problem by 2017 or 2018, long after they are forgotten in the dustbin of history. 

Twenty years after passage of the Chief Financial Officers Act, only one conclusion is possible from the repetitive charade: either the Pentagon's leadership is not competent to fix the problem or, more likely, it does not want to fix it.  As I explain here and in the Domestic Roots of Perpetual War, there is good reason to have a bookkeeping shambles.  It serves a useful, if nefarious, purpose: think of it as a kind of intellectual grease that keeps the money flowing throughout the Military - Industrial - Congressional Complex (MICC) -- a lot of people are getting rich, building careers, and accreting power out of hyping the money flow. While soldiers at the pointy end of the spear and taxpayers are getting hosed, generals are going through the revolving door to big jobs in industry; congressional staffers on defense committees move into high ranking political jobs in the Pentagon, which then gives them a spring board to big jobs with the defense contractors; industry titans move between jobs in industry, the Pentagon, and back to industry; and contractor pac money flows to congressmen.  The result is a self-sustaining harmonious circular flow of money through the political economy of the MICC -- what we in the Pentagon call a self-licking ice cream cone.  

This Madisonian farce-tragedy took a thoroughly comic twist on 26 Jan 2011 at a congressional hearing, where the new, 'pro-defense' Chairman of the House Armed Services Committee (HASC) and card carrying member of the MICC, Buck McKeon (R-CA), signaled his objection to the tiny reductions in the defense budget that President Obama was recommending in the name of improved economic 'efficiencies.'  After the hearing, Rep. Randy Forbes (R-VA), chairman of the HASC readiness subcommittee amplified McKeon's signal by invoking a truly bizarre leap of logic: Forbes argued that, since the Pentagon doesn't really know where the money is being spent, then perhaps it should not talk about finding efficiencies! 

Welcome, dear reader, to the Hall of Mirrors that is Versailles on the Potomac! 

I have a better idea for providing the popular information needed to exit Madison's nightmare: Perhaps the Congress ought to use its Constitutional oversight (as opposed to its 'overlook') powers to force accountability on the Pentagon in the spirit of the Constitution.   

Congress should freeze the defense budget in current dollars (or better, in my opinion, reduce it each year by two to three percent) until the Pentagon can pass an audit, as explained in this letter a group of former DoD employees and congressional staffers (including myself) sent to the Simpson-Bowles deficit reduction commission. 

But the courtiers in the Hall of Mirrors needn't worry about this threat to their patrimony. We never received an answer, perhaps because everyone in Versailles is too busy licking their chops over the emerging opportunity to hack away at Social Security and Medicare and the other wasteful 'entitlements.'

King David Doubles Down on a Failed Strategy

Anyone who thinks we should remain in Afghanistan because we are making progress and that the Afghans want us to stay should read this important report (excerpt below) by David Hastings in Rolling Stone.  

My earlier discussion of the flaws in President Obama's second strategic review, which approaches this subject from a different but complimentary angle, can be found here.

King David's War

Petraeus has a new plan to finish the war: Double down on a failed strategy

David Hastings, Rolling Stone, 02/02/11

Excerpt 

.... "Thanks to such internal maneuvering, the strategic review did little to clarify the timetable for withdrawal. The final report, in fact, says almost nothing. We are making progress, but that progress is fragile and reversible. We have broken the momentum of the Taliban, but there will still be heavy fighting next year. The troops will start coming home soon, but they won't start coming home soon. We aren't "nation-building," the president says, though we'll stay in Afghanistan past 2014 to build its nation. It was, in the end, a nonreview review, which suited Petraeus just fine, giving him more time to shape the outcome not just in Kabul, but in Washington. As the general had spelled out in his doctoral dissertation, winning the hearts and minds of Congress is what matters most. Or as one U.S. military official puts it, "If anyone can spin their way out of this war, it's Petraeus."

During his time in Iraq, Petraeus earned the nickname King David, for the imperious manner in which he ruled over the ancient city of Mosul. In Afghanistan, a more apt honorific might be the Godfather. To get America out of the war, Petraeus has turned to the network of warlords, drug runners and thieves known as the Afghan government, which the general himself has denounced as a "criminal syndicate." Within weeks of assuming command, Petraeus pushed through an ambitious program to create hundreds of local militias — essentially a neighborhood watch armed with AK-47s. Under Petraeus, the faltering operation has been expanded from 18 districts to more than 60, with plans to ramp it up from 10,000 men to 30,000." ... click here to view entire article.

Did Obama’s Promise Trigger the Arab Revolt?

My good friend Jim Fallows, national correspondent for the The Atlantic, asked me to be part of a team to publish guest blogs while he is using the 'down time' to finish a book.  I am assigned, with three other people, for this week.  Attached is my first entry, which I am also distributing as a blaster.

Enjoy,

Did Obama’s Promise Trigger the Arab Revolt?

Chuck Spinney

http://www.theatlantic.com/international/archive/2011/01/did-obamas-promise-trigger-the-arab-revolt/70486/

During his brilliantly run campaign of 2008, Barack Obama electrified the world with vague promises of change in foreign policy as well as domestic policy.  (My take on his campaign strategy can be found here.)  Two and a half years later, those promises are ashes.  Nowhere is that clearer in foreign policy than in the Arab world. 

In contrast to the euphoria surrounding the fall of the Berlin Wall, the Arab Revolt of 2011 leaves one with a disquieting sense that we may be standing on the wrong side of history.  People power and the promise of democracy worked spectacularly well for the United States when the tyrants in Eastern Europe collapsed twenty years ago, but I think it may be working against us in the Arab world of 2011.  

Clearly, the explosion of people power in Tunisia and Egypt caught the U.S. flat footed, and to date, has triggered only embarrassingly incoherent responses by our political leadership.  If you doubt this, I urge you to watch this video of Shihab Rattansi’s interview of State Department spokesman P.J. Crowley on Al Jazeera, or read this report describing Obama’s empty platitudes on about the crisis in Egypt.

The revolt shows signs of spreading.  America’s “friends” in Tunisia and Lebanon have already fallen to democratic pressures; as I write this, Hosni Mubarak teeters on the brink of collapse in Egypt, and there is potential for a collapse in Yemen as well as in the Palestinian Authority.

Are we witnessing a chain reaction, where each collapse begets more collapses?   Will the Arab revolt spread to Jordan, Algeria, Saudi Arabia, or elsewhere, or will it peter out?  

Of course, no one can reliably predict how an ongoing interplay of chance with necessity will unfold over the coming days and months. But a question’s unanswerability does not mean one should not think about it’s ramifications.  

Many of the problems are the same from country to country: grossly unequal distributions of income and conspicuous consumption by rich elites; masses of undereducated poor; high unemployment, especially among the young (including college graduates); rising food prices; corrupt autocracy, official nepotism etc.  The forces for a spreading revolt  are in place across the region and will not go away, even if tyrants like Mubarak manage to retain their grips on power in the short term.  

Mr. Obama did not create the forces driving the Arab revolt.  Indeed, the seeds were planted long ago, when myopic cold-war foreign policies began to oppose the democratic/nationalist aspirations of Mohammad Mossadegh in Iran and Gamal Abdel Nasser in Egypt in the early 1950s, and when we began to prop up reactionary regimes in the oil states, while winking at Israel’s illegal colonization schemes after the 1967 War.  

But I do not think President Obama is blameless.  

Obama did surprisingly little to fulfill the hopes and dreams he unleashed worldwide during the election of 2008. Moreover, he deliberately magnified them in the Arab world with his 2009 Cairo speech. But coupled with his continuation of America’s cynical policies to prop up tyrannical Arab regimes, and particularly his spectacular failure to rein in the illegal Israeli settlements in the so-called Arab-Israeli Peace Process in 2010, Mr. Obama may have inadvertently exacerbated the explosive combination of frustrated expectations and business-as-usual that pressurized the current eruption of resentment, anger, and alienation among the Arab people in 2011.  

It is difficult today to appreciate the expectations he unleashed.  I witnessed firsthand how his promises of change pumped up Europeans, Turks, and Arabs during 2008.

I am retired and have been living with my wife Alison on a sailboat in the Mediterranean for nine months out of each year, since we crossed the Atlantic in 2005.  (FYI, this is a link to her travelblog of our adventures.)  During the summer and fall of 2008, we cruised the coasts of southern Turkey, Syria, Lebanon, and Israel.  We spent time in harbours and took inland tours, including a side trip into southern Jordan.   

I try to chat up our many European sailor friends as well as locals I meet to learn about their conditions, lives, politics, culture, etc.  Just about every one I talk to is an ‘average joe,’ living somewhere along the lower two-thirds of the food chain.  Conversations may be in pidgin and sign language, but I generally connect.  Despite this microscopic point of view, I am confident Obama’s promise electrified people in Europe, Turkey, and the Arab world during his 2008 campaign.

In fact, the impression he created boggled my mind.  Once in a small shop in Syria, for example, a man of about 20, asked me in French, Syria’s second language, if I was French or English.  I responded, pointing to my chest, saying slowly, ‘Aameerikaa.’ He broke into a huge grin, put his arm around me, and started chanting ‘Obama, Obama, Obama,’ while pumping a ‘thumbs up’ with his other hand, ending with a ‘high five.’.  While this was an extreme example of the attitude, it was also typical in one sense: as soon as you said you were from the U.S., Europeans, Turks, or Arabs would start talking enthusiastically about Obama.  

To be sure, I am only one guy, but I can say without exaggeration, this kind of enthusiasm was exhibited by at least ninety per cent of the people I saw (Israel excepted). Europeans, Turks, and Arabs really wanted Obama to win the election.  More importantly, they were excited about the prospect of America moving onto a positive trajectory. 

That enthusiasm is now a faded memory, but the frustration between the rising expectations he triggered and a stagnant reality is not.  

Consider how far those hopes have fallen: Israel just humiliated President Obama by scuppering his belated attempts to revive the peace process (which even included an offer to buy off the Israelis with 20 more Joint Strike Fighters in return for a settlement freeze of only 90 days).  Coming after his 2009 Cairo speech, the humiliation by the Israelis demonstrated either his helplessness or hypocrisy to the Arab world.  The publication of the Palestinian Papers delegitimized Mahmoud Abbas and other leaders of the Palestinian Authority by revealing them to be Quislings and the peace process sponsored by the United States to be a fraud.  The message could not be clearer: If Arab people want change, they must do it themselves. 

So, while Obama did not create the inequalities at the root of discord, I think his empty rhetoric sharply widened the expectation-reality gap that is fueling the Arab Revolt of 2011. (For the record, Obama’s candidacy and election made me feel proud to be an American and he is the only politician my wife and I have ever given money to.)

Secret papers reveal slow death of Middle East peace process

• Seumas Milne and Ian Black, Middle East editor
• guardian.co.uk, Sunday 23 January 2011 20.08 GMT

The biggest leak of confidential documents in the history of the Middle East conflict has revealed that Palestinian negotiators secretly agreed to accept Israel's annexation of all but one of the settlements built illegally in occupied East Jerusalem. This unprecedented proposal was one of a string of concessions that will cause shockwaves among Palestinians and in the wider Arab world.

A cache of thousands of pages of confidential Palestinian records covering more than a decade of negotiations with Israel and the US has been obtained by al-Jazeera TV and shared exclusively with the Guardian. The papers provide an extraordinary and vivid insight into the disintegration of the 20-year peace process, which is now regarded as all but dead. ... (cont.)

Domestic Roots of Perpetual War

Citation: Franklin Spinney, "The Domestic Roots of Perpetual War," Challenge: The Magazine of Economic Affairs, Volume 54 Number 1, January-February 2011, pp. 54-60.

Today, 20 years after the end of the Cold War and the disappearance of the Soviet Union, the United States spends more on defense than at any time since the end of World War II. This is true even if one removes the cumulative effects of 65 years of inflation from the current defense budget. Yet, notwithstanding the absence of a nuclear-armed super power to threaten our existence, this gigantic defense budget is not producing a greater sense of security for most Americans. 

Indeed, we have become a fearful nation, a bunkered nation, bogged down in never ending wars abroad accompanied by shrinking civil liberties at home. We now spend almost as much on defense as the rest of the world combined, yet the sinews of our supporting economy, particularly the all-important manufacturing sector, are weakening at an alarming rate, threatening the existence of the high-income, middle-class consumer society we built after World War II.  

President Obama promised change, but he is under intense pressure to increase the defense budget even further, in part because he is continuing his predecessors’ war-centric foreign policy. At the same time, he is being pressured to reduce the rapidly increasing federal deficit, caused in part by the rising defense budget, but also by an ill-advised bank bailout and the cyclical effects of the worst recession since the end of World War II. Moreover, the president initially promised to place the Pentagon off limits, while he sought reductions in discretionary spending for civilian programs and only reluctantly put defense spending “on the table” when he convened a bipartisan panel to seek a comprehensive path to a balanced budget. Lurking in the background, hanging over the American people like a guillotine, lies the menacing possibility of cutting Social Security and Medicare. In short, Obama may have promised change, but he is continuing the establishment’s business-as-usual practices, including the grotesque diversion of scarce resources to a bloated defense budget that is leading the United States into ruin. Whether or not Obama’s defense policy is a question of his free will is quite beside the point.  

The salient question is: How did the American political system maneuver itself into such a destructive straightjacket? ... (continued here or here)

Was the Euro a Bridge Too Far?

I am a fan of the European Union, but the analysis, Can Europe Be Saved?, by Paul Krugman in the 16 January issue of New York Times Magazine, is a good summary of what is going wrong in the European project. 

The worldwide financial meltdown has pushed several of the EU members — Greece, Ireland, Portugal, and Spain to the cusp of a debt deflation, raising the specter of national bankruptcy.  At the heart of the problem is the euro, and the inconsistencies resulting from the mismatch between monetary centralization and fiscal decentralization. 

There is simply no question that the progressive economic integration of the Western European countries that began with the Coal and Steel Community in 1950 has been good economically and politically for Europe and the World.  But as Krugman shows, the adaption of a common currency — the Euro — in 1999 without a concomitant commitment to a unified fiscal policy set the stage for an inevitable crisis.  

Some observers, like my friend Marshall Auerback, have long warned about the problem posed by the mismatch between monetary and fiscal integration, but their dissents were lost in the enthusiasm of the rush to adopt the Euro.  Add in the rapid expansion of the Eurozone to the east after the Soviet Union collapsed and the stage was set for trouble.  

The global financial crisis beginning in 2007 brought that problem to a head when sovereign debt crises emerged in several of the weaker EU members.

Krugman analyzes four alternatives for muddling through the sovereign debt crisis, 

1. Toughing it out via tight fiscal (and monetary) policies;
2. Debt restructuring; 
3. Devaluation (some kind of monetary decentralization);
4. Fiscal Centralization.

Krugman explains well why options #1 and 2 are unsatisfactory as long term solutions, so, in reality, it seems to me that only his last two options offer a long term resolution to the crisis — Option #3 or monetary decentralization implies dumping the Euro as a single unified currency, allowing local devaluations, and in effect, returning to the EU status quo ante with some variation of national currency relations that existed in 1998, or Option #4, keeping monetary the integration but adding full fiscal integration.  Moving backward is never attractive politically or intellectually, and Krugman explains the downside of Option #3 (as he did with  Options #1 & 2). But he does not explore possible negative ramifications of Option #4.  In effect, Krugman leaves the reader with the impression that full-scale integration would be the best — and perhaps the only — outcome over the long term.

I am not so sure.  

Full scale fiscal integration — effectively creating a United States of Europe — has long been the dream of many EU proponents, but it assumes all the EU members can move beyond the legacy of Europe’s fractious history: the memories of its wars and the deeply ingrained cultural differences among its peoples.  If the people of Europe can not move beyond the remnants of this cultural DNA, the idealistic dream of a  fiscal union could mutate into a nightmare.

The model for that nightmare may well be a variation of what happened in Yugoslavia, where history and dormant resentments collided horrifically in the 1990s to unravel the union enforced by Marshall Tito.  The resulting chaos created a pressure cooker in the Balkans not seen since the late 19^th and early 20^th Centuries.  

One could argue that some of the cultural differences between Serbia and Croatia, for example, were less than those between France and Germany, or between Sweden and Italy, or between the Netherlands and Spain, or between Denmark and Greece.  Serbia and Croatia are populated by Serbo-Croatian people speaking the same slavic language.  To be sure, Serbia and Croatia have different Christian religions Orthodox & Catholic) and alphabets (Cyrillic & Latin).  But differences in religion and alphabet also exist in the EU.

On the other hand, Serbia and Croatia  had very different histories (but not so for Serbia and Montenegro).  Serbia was part of the Ottoman Empire while Croatia was part of the Austro-Hungarian Empire.  Western (particularly the northern) European countries also have different histories of being independent nation states that emerged out of feudalism (which enshrined the principle of reciprocal powers), with unique languages.  The feudal and national experiences were been far less developed for the countries making up the former Yugoslavia, having been provinces ruled by multi-ethnic empires.

Prior to its dissolution into civil war, Marshall Tito had forged a unified Yugoslavia into the most prosperous economy in the old Communist block, people were educated, and there was much intermarriage among nationalities.  Indeed, Tito himself was half Slovene and half Croat.  To be sure, he was a ruthless leader and a virtual dictator who used the whip hand to contain local animosities, but few people would have predicted that Yugoslavia would collapse into a violent civil war after Tito died.  

It is now clear that animosities remained beneath the surface, and one of the main factors breaking up Yugoslavia was the resentment on the part of the relatively richer Slovenes and Croats over having to transfer some of their scarce wealth to the relatively poorer Kosovars, Macedonians, Montenegrans, and Serbians.  Those economic resentments (which were fanned by opportunistic outsiders as well as insiders in the 1980s and 90s) resurrected memories of past wrongs and atrocities, launching a downward spiral to disintegration, violence, and destruction not seen in Europe since World War II.  

No doubt, Tito’s death in 1980 and the loss of his organizing genius was a major factor in the loosening of the bonds holding Yugoslavia together.  Significantly, there is no statesman of comparable stature to forge a fiscal federation out of the EU, much less to make it endure.  And EU governments are democracies that ultimately respond to popular emotional pressures, like ethnic resentments and the “otherness” of people who are somehow different.

I have spent 75% of my time living in Mediterranean over the last five years, and my conversations with many European friends, from all walks of life in both northern and southern Europe, make it quite clear to me that there is a widespread latent resentment among the inhabitants of the richer countries of the north over the the requirement to transfer money to relatively poorer countries in the South.  That said, the overwhelming majority of Europeans from all parts of the EU favor the EU, and I would categorize these kinds of complaints as griping.  I have seen no hints of threats or any tendency toward violence associated with these resentments.  Until recently, it was common hear comments like, “It is a great time to be a European."

There is no question that a new and very different Europe and a new Europeaness is evolving, but that very newness may make it vulnerable to too massive a change.  The history of the EU’s integration from the the tentative steps taken in 1950, suggests a pathway of incremental change is best. Indeed, it was the jump to a common currency that became become a source of the most serious crisis facing the EU itelf.  

A full fiscal union would involve an even greater jump and a more drastic subordination of national identities than the monetary union.  If significant minorities of people in the rich countries felt they were being treated unfairly by the imposition of a supranational authority, including the requirement to transfer funds to the poorer countries (via taxing and spending programs much like New Yorkers help to subsidize the poorer states in the south through the federal tax and spending system), opportunistic politicians may be tempted to fan the fires of national resentments by emphasizing the “otherness” of the poorer countries in southern or eastern Europe.  This kind of demagoguery would be particularly potent during times of economic stress and insecurity.  

If you think this line of argument is too much of a stretch, given the postwar history of Europe, just look at the link between the fanning of resentments to the most recent incarnation of paranoid political extremism in the United States.  Might a similar process put a political sequence of action and reaction into place that eventually intensifies to a level that kills the EU goose that laid the golden egg?  

Krugman ignores the implications of the dangers posed by this kind of interplay of chance and necessity in his assessment of Option #4.  Had he considered them, Option #3, or retreating from the Euro (but keeping the customs union, open borders, free movement of capital and labour, and the harmonization of standards and regulations, etc), while painful in the short term, might look a little better when viewed over the long term.  A return to  a degree of sovereign currencies in an EU context (perhaps in some kind of form of tiered Euros, coupled with some quasi-fiscal coordination?) may pose a better chance for putting the EU political economy on a more sustainable evolutionary pathway toward integration over the long term.  Moreover, given the already widespread use of modern electronic funds transfer capabilities ranging from ATM machines to international bond sales, the major inconveniences of working with separate currencies would be relegated to the past.