The Atlantic and Its Enemies

by Norman Stone

  Germany looked, in informed British eyes, miraculous. In November 1972 the SPD-FDP coalition won handsomely, and although the Left did make a spirited effort to take over important places, it was always defeated by factors without a British counterpart: the liberals of the FDP controlled essential ministries, with foreign affairs and finance, while the trade unions, quite happily part of ‘the system’, did not get in the way of sensible management of the oil crisis. The Bundesbank defied governments’ attempts to spend money that they did not have, whereas the Bank of England blew hard into asset-bubbles. The Left might make a great deal of noise; Brandt, increasingly and rather sentimentally tolerant of these things, isolated himself, and somehow grew down. Bismarck used to say, On revient toujours à son premier amour, and Brandt’s own weakness, as he grew older, drank more, and showed off to the women, was for the Left of his youth, a split-off from the Communist Party which was quite close, during the Spanish Civil War (in which Brandt had been present), to the POUM, the anarchist element in Barcelona that Stalin had had put down. He became, in a word, vain and silly. His memoirs are very revealing, and they almost typify Graham Greene’s comment, that you live until you are thirty and then remember. In Brandt’s case the memoirs are full of life until about 1955 and then the machine takes over the ghost: his version of Ostpolitik is hardly more than toponymy. His judgement clearly went, and in his closest entourage he was tolerating a clammy East German spy, Günter Guillaume, who, eventually found out, caused Brandt to resign when the FDP foreign minister, the machine-man Hans-Dietrich Genscher, revealed this. Helmut Schmidt, the power in the party, dismissed the Left as ‘half-baked students’ who confused the crisis in their own brains with a general crisis; and he went ahead with an interesting strategy. There would be Ostpolitik. Germany would recognize the post-war borders, and maintain proper relations with Poland especially. Given that, in the previous generation, millions of Germans had been driven out, a great many of them dying on the way, this required much dignity and sense, whereas in comparable situations elsewhere — the Armenians, the Greek Cypriots, or for that matter the Palestinians — self-pity, distorted history and cries for vengeance went on and on (and on). But there would be no sentimental nonsense as to how Left would understand Left; Germany remained firmly in and with NATO, and, when he had to explain why Marks were spent in defence of the staggering dollar, Schmidt was forthright: they defend us, therefore we support their currency. More generally, Schmidt had a strategic sense that good relations with Moscow would in the end mean that a deal could be done there, wiping out East Germany. So it proved. Helmut Schmidt, who smoked heroically on television, aged ninety, and said of Herbert von Karajan that his life had been all discipline (‘loathsome’), was one of the later twentieth century’s none-too-many interesting political figures.

  Schmidt took over in 1974, and Germany managed the oil shock quite successfully. Motoring on Sundays was banned; traffic in cities was subjected to controls. To this day, the traffic mess of a British town would be unthinkable in a Germany where elementary enlightenment in such matters — a limit to the number of buses, and a prohibition of deliveries by vans and lorries after 8 a.m. is normal — comes as a matter of course; it is also true that, in spending public money to offset the effects of industrial crisis on old industrial cities, the West Germans were again very successful. Essen, heartland of the old Ruhr, suffered from the competition in iron and steel from up-and-coming countries such as Korea. So did Sheffield. Sheffield, like other northern English cities, was then swamped in ugly, badly planned concrete, with hardly any effect upon employment, and none at all upon prosperity. Essen was simply more intelligently managed, because local government, trade unions and employers knew something and could co-operate for the greater good. Perhaps the essential element was the federal system: if one of the big states embarked on a mistaken strategy, it would have to compete with alternatives practised elsewhere. This happened over education. Left-wing local governments offered an equivalent of the comprehensive schools that were pushed through uniformly in Great Britain, and, at that, schools which kept open all day, in such a way that housewives could work. These Gesamtschulen were, as in England, not only, on the whole, unsuccessful, but in some cases scandalously so. Parents then migrated to another state that had managed these affairs differently. One result was that the balance of prosperity shifted south, into Bavaria and Baden. Another result, some years later, was that the Gesamtschulen improved their ways. Again the question came up, why was England not Germany, rather than the other way about?

  However, Europe was not going to be the answer to England’s problems. Whatever its prosperity, there was a sense that, somehow, its creativity was going. It could repeat past glories, and the Bayreuth of Wieland Wagner splendidly did so. But where were the great films of yesteryear, where the interesting architecture, and where, increasingly, the young generation? Overlaying it all, there was a cultural malaise, as the Germany of the ‘miracle’ generation bored its children, and still more its grandchildren; the universities were to suffer over this. Hans-Magnus Enzensberger, the German Orwell, moved over the border to Denmark, and just despised his native land: he notes, for instance, that at some time in the later eighties Chancellor Helmut Kohl’s New Year Address, on television, was got wrong: they played the previous year’s address, and no-one noticed. Enzensberger was bored, but was bored by the wrong things. He noted, quite rightly, that television was the opiate of the masses, that people would just look at a row of dots on the screen as if it mattered, that there were seventy people writing doctoral theses on one poet. But he was the product of a world that hated its grandparents, and shook its head at its parents. Of course, it was true that families mattered, but did there have to be a law by which a wife could not take a job until she had performed her housewifely duties? That made sense, but only if the tax system supported fathers, and the sheer costs meant that the State taxed, and did so in defiance of its own rules. Problems were coming up in this, and though the coalition government did try to modernize, it did so superficially. The intelligentsia were bored. Bayreuth put on strange interpretations of Wagner, and Horst-Eberhard Richter produced a ‘Physicians for Peace’ movement, recording that ‘we men must learn to overcome the militant image of masculinity’. Heavy, charmless, sentimental German Protestants hawked their consciences round the world, and chicken-muscled women in shorts were to be seen in the vicinity of the old Teutonia-Haus in the old Istanbul street of steps, looking patronizing right and left, and regarded with wonder by the locals: why were north European women so unappetizing? And yet Germany was the admirable European country, if you judged these things from the viewpoint of an England in which nothing worked. In the early 1980s England was going to produce an extraordinary counter-attack.

  There was more. Helmut Schmidt had a sense of strategy, that Germany could be a model for East and West alike, and the country could take a lead in Europe. Here, he encountered France. The decline of the dollar maybe made some opening for an alternative world currency, the euro. However, there were severe difficulties. True, there was a successful economic community, but the economies were quite different, and England especially, where property had a preponderant part, and there were worldwide interests, did not fit.

  French and German budgets were very different: in France deficits were second nature, whereas in Germany the Bundesbank had its rules and could operate independently, to encourage saving. The Common Agricultural Policy took up almost all of the European budget (a uniform fraction of the value added tax, itself varying from place to place) and if the franc went down against the Mark then there were problems as regards adjustment of the sums to be paid to farmers in the way of subsidies. In the end, a European common currency could just mean Germans paying Frenchmen to do nothing, and the British were as usual in the middle as regards the dollar. Even Helmut Schmidt shook his head at the complications.

  The Germans went doggedly on, trying to find some formula for sensible foreign
exchange. This really boiled down to some scheme by which the German taxpayer would pay for it, and in 1979 the French graciously agreed: a European Monetary System was founded, authorizing governments to draw unlimited credit to defend their currencies. Schmidt called this ‘part of a broader strategy for political self-determination in Europe’, and then had a battle with the Bundesbank, which would have in effect to create inflation in Germany in order to pay for irresponsible finance in France and Italy. The decreed rates, originally variable only by small percentages, had in the event to be widened, and there were also controls on capital movements — all of this a breach of the free-trade rules. In the early 1980s France even had a preposterous rerun of the Popular Front, and controls on ‘capital’ meant, for a time, that travellers could not take cash abroad. The bourgeoisie then re-enacted the suitcase-to-Switzerland part of the French historical scenario. Early in 1983 this farce was stopped, and two Frenchmen of guile, Jacques Delors, and his Treasury secretary, Michel Camdessus, were able to point to the high unemployment, the high inflation and the general bankruptcy of state concerns as evidence that ‘Europe’, rather than the go-it-alone Popular Front line, was the answer.

  By the turn of 1978-9 the conviction grew that international co-ordination was not possible, given the weakness of the dollar. Trade would suffer, and inflation would rise. That summer, 1978, the dollar fell, interest rates rose, and Carter imposed wage-price stops. He organized swaps of credit, and issued US bonds denominated in yen and DM. This was designed to help the ‘real’ economy — thought to be in good condition — to ignore the financial fluctuations, held to be ‘unreal’. Poor Carter was unlucky. The world was about to be hit by a second oil shock. Late in 1978 Iran boiled over. Here had been a sort of showcase of modernization. The rulers of Iran had looked to the example of Atatürk’s Turkey in the past, a country where the alleged or real backwardness of Islam had been overcome. Rulers of Iran had a history of misunderstanding Turkey. Atatürk had not really persecuted Islam at all; he had tried to limit the excesses of religion where its ambitions to control the State, and education, were concerned. The Turkish state had also been honest, whatever its mistakes. The Shah of Persia broke both of these rules. Besides, Turkey had no raw materials to speak of, and money was scarce: austerity reigned. In Iran money in enormous quantities poured out of the ground, in the form of oil, and the Shah became for a decade or so the figure of which his title, ‘King of Kings’, spoke. The great of this world paid him court. His self-understanding caused him to look down on assorted Arabs as wild tribesmen; and Persians by tradition also regarded Turks with much resentment, because (as to a degree with the Hindu nationalists on the subject of the also Turkic Moguls) they were alleged to have thwarted the otherwise obvious course of the great and Aryan Persian civilization towards the patterns of the West. In fact (a fact very frequently denied) a good third of his subjects were Azeri Turks. The Shah did not regard them with much favour. He had launched a gaudy programme of modernization, expecting (a mistake much made elsewhere) that Islam would vanish once Moslems understood that the world offered rewards for those who abandoned the rules of a very strict religion. Why bother with chastity and virginity tests in an age of contraception? Money was spent — most grotesquely, on a ceremony at the ancient city of Persepolis, where the King of Kings sat on a golden throne and dispensed patronage to an assortment of academic specialists and emissaries of the world. Money was also stolen. Teheran acquired huge traffic jams and vast concrete buildings. Western parasites arrived, middlemen of middlemen. An inflation got under way, which left the bazaar people, with their habits of thrift, of saving even empty jars and used boxes, impoverished, while the speculators were enriched. Part of the educated middle-class youth turned Communist, and the Savak, the secret police, did not treat them gently. They took up an alliance with the Islamic opposition, and they, too, suffered from a patronizing arrogance, leading them to see these people as just infantry fodder for a revolution that would soon turn Communist — an illusion that the then Soviet advisers also shared and promoted. Strikes and demonstrations began. The final push came from Carter. Persuaded that the Shah’s regime was too oppressive, that America’s mistake in the past had been to alienate the Castros and Allendes through CIA action, he encouraged the Shah to hold back. In the same way, his official representative at a human rights gathering had solemnly stood up and apologized for his country’s handling of Allende and Chile. And so the Shah was overthrown. But his successors were not Communist at all. Over the turn of 1978-9, after various governments had passed in and out, the Ayatollah Khomeini took over, a grim, elderly figure whose prescription was theocracy, the Rule of Saints. The Saints manifested themselves in mobs of students, in gruesome executions, in parades of black-garbed women vociferously demanding that Westernization, in particular the ways of ‘satanic’ America, should be put down. This left the Communists nowhere: they — who after all did represent women’s rights and much else that Islam did not wish to see — received as much persecution as the rest, if not more. The Western oil companies, where they did not at once leave, were expelled, subject to persecution or worse. Accordingly, oil prices went up all of a sudden: they doubled. Another version of the troubles of 1973?

  To start with, paradoxically, the dollar rose in value because in times of trouble the world, including Iranian Islamists, used it as money of last resort. Dollars also flowed back to the USA, again for reasons of safety. Gold rose from $200 per ounce to $875 in 1979 as the Middle East produced crises — the Iran hostages affair, and then the Soviet invasion of Afghanistan. Carter himself had somewhat turned, appointing William Miller of the Fed to the Treasury and Paul Volcker of the New York Fed to run the American equivalent of a central bank. There was to be a meeting of the IMF at Belgrade late that summer. Volcker received lectures from Helmut Schmidt and once returned to the USA that October he announced that the defeat of inflation would be the Fed’s main target. Interest rates would rise as much as necessary, and there would be direct control of bank reserves. American opinion had been the most important factor, but it also mattered that the Germans were rebelling. After all, at the Bonn summit in 1978 there had been a great deal of resentment of the Americans’ ways, and even threats as regards trade; there were large imbalances as states reacted differently to the second oil shock, and the Europeans’ Exchange Rate Mechanism had been called into existence to provide for some stability in a world dominated by the fecklessly managed dollar.

  This was an absurd way to manage world trade and international money. It also encouraged mathematical-minded parasitism on an enormous scale. At a scrape with a felt-tip pen in Japan, or by a fax, or the touch of a computer button, elsewhere, huge sums of money could move from one currency to another, in search of a profit based on some even tiny movement of interest rates or bond yields. By 1992, $880bn went through the machines every day — one third of the value of the whole of the world’s annual trade. In 1987 that process was already well under way, when it amounted to a tenth of world trade. This was in effect a huge and grotesque comment on the ‘Triffin Dilemma’, and that man had identified the central problem of Bretton Woods almost before the ink was dry on it. The Americans themselves suffered 30 per cent inflation in the 1960s, and yet unemployment reached 6 per cent in 1971 and New York City went bankrupt in 1974. Latin American countries borrowed joyously in paper, built upon paper, and ran into great trouble, as their rich just moved the money out, into property in Miami, where a crime wave emerged. Here were contradictions of capitalism in neon lighting, and most media commentators on the Continent scoffed. Could not Europe produce a currency that meant something? The Mark (the Swiss franc played a similar role) might then represent real, sensibly managed money. One way was the setting-up of a European currency, a standard in a fluctuating world. They tried. It was not easy, because Carter was rather stupid. Schmidt had to repeat things to him, more than once, for him to understand, and the two men ended up regarding each other with wonder, th
e one in a cloud of cigarette smoke, and an experience of the Eastern Front of the Second World War, the other with very little experience of anything at all except his mother.

  Meanwhile, the oil money was floating around, waiting to land wherever it could find even a tiny percentage of profit, and it moved into Latin America and central Europe, especially Poland, the rulers of which were projecting themselves as a new Japan. When Citibank left Okęcie airport at Warsaw, after signing the deal, the plane was delayed on departure because a drunken baggage-handler crashed his vehicle into it. That debt built up, and up, and even Professor Congdon worried enough about it, in 1986, to write an alarmist book. It was not necessary: the debt was simply not paid, or, rather, the American taxpayer paid it. The West, in the summer of 1979, was in poor condition, and Europe was not producing the answers. Creativity would have to come from the Atlantic again, and it did. Margaret Thatcher emerged in May, and Ronald Reagan was elected President in 1980.

  21. Atlantic Recovery: ‘Reagan and Thatcher’

  Ronald Reagan and Margaret Thatcher each brought to bear some of the core beliefs of their civilization, which included (among others) Hollywood and a belief in facts. Ronald Reagan had been an actor, a Rooseveltian Democrat, and he had escaped from a past in a way that commanded respect — his father a drunken failure, his mother a shrew. He had pushed his way forward, via a degree in simple-minded verities at an obscure college, through sports-commentating, to Hollywood. There, he had been repelled at the tactics of the Left, in the actors’ milieu. Actors’ politics are generally repellent: in the Middle Ages they were refused a proper burial, and in the French Revolution they had been well to the fore in revolutionary activities. The Revolution did not have a sense of humour, but they had been given the job of enforcing the price-maximum in grain. Peasants, to avoid selling the grain, had fed it to their animals, which at least they could consume, and a trick was to detect the grain husks in the animals’ excrement, a task for which actors were especially selected by the reigning revolutionaries.