Europe's Leaders May Need History Lesson

The Wall Street Journal

…, the leaders' muddling-through isn't yet doomed to failure…

… a debt crisis that started in one small country didn't have to bring it down…

… the gravest fault was committed not in 2011 but in 2010: baking in private sector involvement…

…, it may just be that …adequate short-term fixes cannot be found, let alone long-term solutions…

… World War I,…was unthinkable between the Great Powers because their economic self-interest clearly lay in keeping the peace…

Given their record to date, is there any reason for faith that Europe's leaders will succeed in 2012 in doing what they signally failed to do in 2011 and stem the crisis that now threatens the existence of the euro zone?

The auguries aren't good. The culmination of their work over the year, as the Journal's reconstructions published over the past two days have shown, is to have guided a debt crisis in three small economies into a survival struggle for the single currency.

Many of those players have already left the political stage: Brian Cowen, José Sócrates, George Papandreou, José Luis Rodríguez Zapatero, Silvio Berlusconi.

Technocrats rule troublesome Greece and Italy, and governments with new mandates have taken over in Spain, Ireland and Portugal. But pessimism over the future of the euro and the ability of governments to boss events appears close to an all-time high.

As this column pointed out last week, the leaders' muddling-through isn't yet doomed to failure. And perhaps we whose job it is to attend on serial summits and ministerial meetings invest them with too much significance.

Perhaps too, the leaders are powerless to save a currency doomed from the beginning by its faulty construct. But, surely, a debt crisis that started in one small country didn't have to bring it down. If the euro does fail, Europe's current crop of leaders will have to share the responsibility.

If they reflect, they will see errors of commission and of omission. One senior European figure deeply involved in the discussions says the gravest fault was committed not in 2011 but in 2010: baking in private sector involvement—the euphemism for imposing losses on government bondholders—as a price for future bailouts. The step has since been partly recanted, but not before it scared away some prospective investors, probably for years. "I consider this the biggest mistake we have made in the crisis," he said earlier this month.

If this was an example of a major error, the seriousness of the crisis has magnified small flaws into matters of significance. Herman Van Rompuy, who chairs European summits as president of the European Council, is a former Belgian prime minister with a knack of sealing a deal.

That is a useful skill when the world is hanging on summit outcomes, but often over the past year an agreement forged in the small hours leaves loose threads that quickly unravel, undermining confidence.

"All negotiations end with a degree of ambiguity," Étienne Davignon, a former senior Eurocrat, told a meeting at a Friends of Europe forum in October. "But if there is too much ambiguity, then credibility disappears."

More fundamentally, it may just be that the current constellation of political personalities, institutions and circumstances are such that adequate short-term fixes cannot be found, let alone long-term solutions.

One hears less today in Brussels of the conviction that, because so much hangs on the politicians getting this right, that they will therefore get it right. In September, I drew a parallel with the widely held conviction before World War I, encouraged by the future Nobel Peace Prize winner Norman Angell, that war was unthinkable between the Great Powers because their economic self-interest clearly lay in keeping the peace.

World War I is a far-from-isolated example. "A phenomenon noticeable throughout history regardless of place or period is the pursuit by governments of policies contrary to their own interests," began Barbara Tuchman in her book "The March of Folly."

The reasons include, her book made clear, rejection of reason, the lust for power, mental stagnation, idleness and failure to admit error.

"The March of Folly" conjured repeated reminders of the Europe of today. Tuchman noted the remarks of a former U.S. president, Dwight Eisenhower, as he argued for inspired leadership to create a United States of Europe, the only way he saw to preserve Europe's security. President Eisenhower doubted it would happen, because: "Everyone is too cautious, too fearful, too lazy, and too ambitious (personally)."

Can we not also draw parallels between the attempts to impose austerity on euro-zone countries from afar and the doomed efforts she described by the British government to tax its colonials in the 18th century?

Will public opposition to such policies mean that the effort turns out to be as, Lord Newcastle said of the attempt in 1765 to oppose a stamp tax on the American colonies, an attempt at "asserting a right you know you cannot exert"?

Lord Newcastle pointed out that the tax would bring the London exchequer no more than £80,000 a year (an overestimate as it turned out), which would not compensate for the loss to Britain because of American boycotts of British goods of trade worth at least £1 million a year (an underestimate).

How much will the German insistence on austerity cost German exporters, who, for multiple reasons we have described before, have been huge beneficiaries from the euro?

And are there parallels in the fixed ideas that some influential figures hold about how to resolve the crisis, which, to the extent they have driven German policy, have done nothing at all to calm the storm and, in the eyes of quite a few analysts, have worsened it?

"Wooden-headedness, the source of self-deception, is a factor that plays a remarkably large role in government," Tuchman wrote.

"It consists in assessing a situation in terms of preconceived fixed notions while ignoring or rejecting any contrary signs. It is acting according to wish while not allowing oneself to be deflected by the facts.

"It is epitomized by a historian's statement about Philip II of Spain, the most wooden-headed of all sovereigns: 'No experience of the failure of his policy could shake his belief in its essential excellence.'"

Write to Stephen Fidler at stephen.fidler@wsj.com