On November 9, 1989, West German chancellor Helmut Kohl was in Warsaw.
David Marsh reported on the state visit for the Financial Times. But that evening, 600 kilometres to the west, a story of far greater importance was unfolding.
Marsh laid out its historical significance in a dispatch he published for the paper less than 48 hours later. “Yesterday’s wave of humanity washing through the Berlin Wall marks the crumbling away… of the ugliest symbol of the post-war world – and [pushes into place building blocks for] a new Europe.”
Since then, Marsh has made a transition from journalism into financial consulting.
He is currently CEO of the Official Monetary and Financial Institutions Forum (OMFIF): a London based think tank for central banking, economic policy and public investment.
But he has also continued to write about Europe’s political-economic vulnerabilities. His newest book is Can Europe Survive? The Story of a Continent in a Fractured World.
Four years in the making, it contains interviews with 160 individuals, including several past and present heads of state Mark Carney, Mario Monti, David Cameron, Gordon Brown and Friedrich Merz. A heavyweight lineup also includes Ben Bernanke, a former chair of the US Federal Reserve, Mervyn King, a former governor of the Bank of England, as well as three past presidents of the European Commission.
These conversations have led Marsh to a depressing conclusion: Europe is in bad shape economically, politically and economically. Since the fall of the Berlin Wall the continent “has lost its leadership, and lost its way,” Marsh writes.
Marsh summarises Europe’s ongoing multitude of crises as “the six Ds”: deglobalisation, demographics, decarbonisation, digitalisation, defence, and debt. He claims the fundamental roots of these political problems can be traced back to November 1989. Once the Cold War ended, Marsh claims the so-called peace dividend that followed made the West complacent and cocky.
“As early as 1991, the Americans knew a future war between Ukraine and Russia was very likely and there is evidence they cynically accepted this as a price worth paying for American dominance in central-east Europe,” Marsh explains from his London home. “This doesn’t excuse the barbarity of Putin’s actions in Ukraine today, but it helps explain it.”
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Marsh’s book also looks at the ramifications of moves made after Germany’s reunification in October 1990, including the formation of the Economic and Monetary Union (EMU) and the European Central Bank (ECB), established to launch the euro.
Politically, the aim was to prevent a unified Germany from becoming a dominant European power. Economically, the ambition was to build a currency that could hold its own against the dollar. “But most monetary unions fail unless they are backed by a political union,” says Marsh. “One reason why Europe is so weak now is because the monetary union does not have the backing of a political union.”
Another reason is the rise of China. In 1980, the economy of what was then the nine-member European Community was roughly eight times the size as China’s. Today, with 27 member states, the EU’s combined economy equals China’s; by 2050 it’s predicted to be half China’s size.
Chinese economic growth and self-sufficiency have come at a price: Europe’s exports there have rapidly declined. Germany now exports to the People’s Republic less than what it exports to neighbouring Poland, and Marsh says: “Germany is in a real crisis. We are finally seeing the demise of the 19th-century German economic model, which was built on heavy industry.”
Marsh mentions the irony of China’s entry into the World Trade Organization (WTO) in December 2001. It was meant to move Beijing closer to becoming a western-style democracy. But since then, China has got wealthier and more authoritarian.
In the coming years, in the interest of trade and prosperity, Europe will continue to turn a blind eye to China’s atrocious human rights record, says Marsh. “You can only take the moral high ground if you are on economic high ground, so Europe will have to bend to China’s will. Especially as the continent becomes squeezed by China and the US over trade, security and technology.”
Where does Britain fit into this story? In 1930, Winston Churchill wrote: “We are with Europe, but not of it.”
It’s an apt phrase for thinking about post-Brexit Britain, Marsh believes. Geography and history, he points out, have always made Britain a nation apart from Europe. And yet, the UK’s 47-year EU membership, he claims, brought direction, rather than disorder, more success than setbacks. “In the years since the Brexit referendum and formal exit in 2020, the UK’s departure has been, on balance, a failure,” he concludes.
Marsh claims Brexit has “saddled the UK economy with regulatory burdens and impediments to investment at precisely the wrong time, coinciding with radical uncertainty in world politics and economics.” Yet despite this handicap, he warns that “Britain will only be taken seriously by Brussels and other European capitals if it resurrects a reputation for economic prowess.”
Leaving the EU “has not only made Britain a poorer and more unequal country than it would, arguably, otherwise have been,” Marsh writes, “It also coincided with, and helped to spur, a sense of political malaise across the continent.”
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Still, Marsh points to what he says is one advantage of Brexit. Being outside the EU meant Britain was able to react more quickly and effectively to the Russian invasion of Ukraine in February 2022. He hopes that the UK might be able to influence the EU over another threat too, saying, “Europe, together with Britain must face up to some home truths over China. It is best that they do that together.”
Although outside of both the euro and the EU, Britain could potentially play a role in stabilising the monetary union, when the euro inevitably stumbles into yet another crisis, Marsh explains.
Can Europe Survive? The existential question Marsh’s book poses specifically refers to a western European way of life built on multiculturalism, democracy, prosperity, education, industrial prowess and social protection. “Whether we like it or not, we will have to cut down on social values in Europe, as it becomes poorer and less able to support a fully-fledged [welfare] state,” he says.
Still, Marsh suggests that by the late 2020s, Europe may have reached peak pessimism and can redefine itself in four key areas: defence, industry, finance and energy. Patience, self-belief, and endurance will be needed in abundance.
“Europe will continue to muddle through at a lower level of wealth and position of pride,” Marsh concludes. “It will be an uphill journey and a long haul. But for Europe, it can be an age of resilience.”
Can Europe Survive? The Story of a Continent in a Fractured World by David Marsh is published by Yale University Press
