A Talk with Niall Ferguson

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At a Gala event this past November, the Austrian Economics Center and the Hayek Institut jointly presented the Hayek Lifetime Achievement Award to British historian Niall Ferguson in recognition of his many professional contributions in defense of individual liberty and economic freedom.


Born in Glasgow, Scotland, Professor Ferguson was educated at Magdalen College, Oxford. He is a Professor of History at Harvard University, a Senior Fellow at the Hoover Institution at Stanford University and a Senior Research Fellow at Jesus College, Oxford. A prolific scholar, his recent books include Henry Kissinger: A Life (2012), The Ascent of Money: A Financial History of the World (2008), Civilization: The West and the Rest (2011), High Financer: The Lives and Times of Siegmund Warburg (2010).

He recently spoke to the Hayek Institut’s Secretary General about monetary union, the European debt crisis and what Europe can learn from others.

Is Europe on a fiscal cliff — and what does one do when facing the precipice?

I think some European economies fell off the cliff some time ago. The interesting problem for Europe is to have the Germany economy, and its satellites — including

Austria — up at the top, and Greece, Spain, Portugal — and to some degree Italy — if not right over the cliff then dangling somewhere below.

I think this was always going to happen because of a faulty design in the monetary union which some of us pointed out at the time. If you have a single monetary system but multiple fiscal systems, and everybody’s welfare state is at varying stages of disintegration, then at some point there’s going to be a complete mismatch between monetary policy and the cycle in the different countries. I can’t pretend I’m surprised.

What are the implications for the Euro?

The real question is whether this crisis ends in the complete disintegration of the monetary union. I don’t think it will. I think the political capital in the project is just so great from a German point of view that nobody wants to be ‘the woman who killed the euro’. However, I think keeping the euro alive is going to be very, very expensive — and it will probably ensure that Europe’s economy as a whole performs about as well as Japan’s has performed in the last twenty years — so you end up with very large debt and very low growth.

The risk is, of course, that the only policy response is fiscal union, which is what most of us are opposed to. What will occur if that happens?

If you follow the logic of the Delors Report [1989], it was always supposed to lead to some degree of fiscal union — and, indeed, in my view, you can’t have a monetary union without some degree of fiscal union. So anybody who thought you could just have monetary union and no fiscal integration was either dreaming or fibbing. The problem I foresee is that any fiscal union that is going to work will be very expensive for Germany and will involve transfers on the order of 8% of GDP.

Can they afford that?

I think they can afford it. However, I think whether it is politically acceptable or not is the real question. So I think [Angela] Merkel and her advisers, who I think understand the logic of their predicament, somehow have to lead the German voter towards this fiscal union without their quite noticing how much it is costing. And that’s going to be very difficult. It probably is impossible. This is the problem. You can’t really take a middle way. It is either fiscal union — or the end of the monetary union. I think it’s pretty binary.

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Niall Ferguson beid der Charity-Gala 2012

How might German citizens react?

When you put the choice like that, very few people in Germany — some, but very few — will say: ‘Well then, in that case, to Hell with the Euro’. For example, all of corporate Germany dreads a return to the Deutsche Mark because it has considerably benefitted them to be in a weaker currency monetary union. So although these are pretty unappealing alternatives — and if you ask me about ‘first principles’, I have always preferred multiple currencies, and I was always opposed to the monetary union because I thought it was a stupid idea — having created it, I think the Euro-zone countries are going to really struggle to avoid taking the next step towards Bundesrepublik Europa.

You mentioned Jacques Delors, who I always considered to be a scoundrel.

He was. Is.

And there were other leaders who came after the so-called ‘Founding Fathers’ of the European project, whose original vision was very different. According to them, it was supposed to be a federal union — more like the United States of America, for example —was it not?

Yes, I mean obviously if one goes back to the ‘Founding Fathers’, or the “European saints” as Alan Milward called them, there were multiple visions. What they had in common was a tendency to ‘soft-peddle’ the political implications because they had seen Richard Coudenhove-Kalergi fail with Pan-Europa between the wars when the goal of political union was explicit. So I think all along in the post-war period, proponents of European integration have sold it to the public as an economic project and kept their political intentions more or less veiled.

With Delors, I think what you had was a socialist who’d been ‘mugged by reality’ — by which I mean the Mitterrand government’s failure to implement large-scale financial nationalization and old-style socialist policies. This led to a very intriguing mutation in which people like Delors said, ‘OK, we can’t have that but what we could do is achieve some version of the social-democratic project at the European level — and perhaps if we pursue monetary union, we can then acquire (a) some greater powers for the European Commission and (b) we can constrain Germany, which otherwise may overwhelm us in the traditional ways.’

I think the germ of monetary union was political; but from the Delors Report onward it was presented as an economic-technocratic project. Most voters were persuaded by that — and those who weren’t were forced to have referendums until they said ‘yes’.

Is there anything that Europe can learn from other countries, perhaps the US, even though it has its own serious problems?

Well, I’d always prefer Europe to learn from Switzerland because I think the United States shouldn’t be seen as some ‘poster child’. What you see in the United States is what happens with federalism. In most cases, the center gets more and more power — fiscal power — and eventually overwhelms the states’ rights. And then, obviously, the crisis of debt becomes a crisis at the level of the federal government rather than at the level of the member states because ultimately the states have very limited fiscal room for maneuver.

So I would say that if the choice is between a home-spun European model — let’s call it the ‘federal republic model of Germany’ — and the United States, then that’s not a particularly great choice. I think when you look at Switzerland, however, there’s a rather more attractive role model for a federal system in which the center is relatively weak. And, indeed, Switzerland has come through this crisis remarkably well — without Keynesian policies despite having a really large financial sector.

I think Switzerland is a great advertisement for what Europe should aspire to be, actually, not the United States.

Thank you for your time, Professor Ferguson.

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 Niall Ferguson erhält den Hayek Lifetime Achievment Award


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