The Eurozone Crisis and the Role of Religion

There is no doubt that the Eurozone is still in the deep cold water of the economic crisis. Many expert economists and financial analysts predict the eventual breakup of the entire Eurozone area in the medium term scenario.

Currently, Spain, Europe’s fifth-largest economy, has had doubts cast on the strength of its banking sector due the country’s property crash. Its banks have lent billions of Euros they might never get back and this has made investors very nervous. Three weeks ago, credit ratings agency Moody’s cut its ratings for 16 Spanish banks, reflecting the heightened risk of them suffering huge losses if property loans are not repaid. The Spanish government has had to part-nationalize one of its banks and may have to bail out more. As a result Spain has to pay out more on its bonds, or debt, to entice investors to buy them. Increased borrowing costs are only adding to the country’s existing economic problems.  

The worst scenario would however be if Greece was forced to quit the Eurozone. This possibility, previously deemed impossible and unthinkable by the main Eurozone leaders, now seems viable. The exit of a country from the EU or a renegotiation of the treaties to enable an exit from the euro without leaving the EU would be an unprecedented regression in the history of European integration, the political effects of which would be sizeable.

It would significantly weaken the credibility of EU institutions and politicians, arguably already diminished due to their lack of response to the recent crisis, and this precedent could trigger a domino effect, leading to the explosion of the entire Eurozone. Above all the exit of a country from the Eurozone would have disastrous economic effects both for the country involved and the Union as a whole.

Well, Martin Luther, the 16th-century German theologian and reformer, was missing when Europe’s leaders gathered in Maastricht in 1992 to establish the criteria for the European Economic and Monetary Union. But in spirit and in terms of historical record, Luther could have provided a suitable rule of thumb to identify which countries should be in the Eurozone and which should not.

Following the above line of argument, the American political economic commentator, Stephan Richter in his 14 May 2012 commentary clearly explained that if a European country turned from Catholicism to Lutheranism or, more broadly, to Protestantism after the early 15th century, when Martin Luther and a few other reformers, such as Zwingli and Calvin launched the Reformation, that would have been a good indication that the nation would qualify for the adoption of the common European currency about five centuries later. If Europe had remained predominantly Catholic, or even Greek Orthodox, it likely would not have.

With few exceptions, that simple rule would have saved hundreds of millions of people around the world a lot of despair, along with much of the animosity and frustration that now prevails, never mind trillions of Euros in asset value. Obviously, Germany would have been in the Eurozone under that rule, as would Denmark, Sweden and Norway. Interestingly, financially solid Switzerland would have been in, too. So would, even more tantalizingly, the United Kingdom, the usually Euro skeptic EU member country but oddly enough represented the EU by Baroness Ashton as Vice President and Chief Diplomat of the European Commission.

As Stephan Richter humorously stated, Ireland? Spain? Portugal? Italy? No. Never mind Greece, that highly un-Orthodox country when it comes to conducting a clean and proper economic policy.  Martin Luther, if asked at Maastricht, would have nixed any suggestion of including these countries straight away. “Read my lips: No unreformed Catholic countries,” he would have chanted. The euro, as a result, would have been far more cohesive and the European economy in far less trouble.

The interesting cases, and possible exceptions, to consider against the backdrop of the “Luther Rule” are Austria, France and Poland. The first two have adopted the euro, the latter not yet, even though its fiscal policy and economic management have been truly impressive. It would be a strong addition to the Eurozone. With regard to Austria and Poland, two truly Catholic countries, one could of course argue they are the exceptions that prove the rule. But one could also say that they, as well as France, are immediate neighbors of the country that was Luther’s home base, Germany.

Located as they are in Germany’s direct orbit, some economic and financial pundits would claim that Germany simply didn’t leave its southern, eastern and western neighbors any other choice, that it imposed its will on them. Since that is very hard to do, although the Germans certainly did try that aplenty in past eras, the far more likely explanation is that these three nations saw it in their self-interest to adapt themselves to their broader environment. They were Catholics perhaps, but with a healthy dose of fiscal Protestantism.

What helped further, no doubt, was the positive example of the nations to Germany’s north, in Scandinavia and even the Baltics. Without exception small, but very Protestant in character, these nations gave the other, bigger countries next to Germany the confidence that one doesn’t have to be big to have a solid fiscal policy.

Viewed from the opposite perspective, look at the countries that never managed to overcome the Catholic Church’s cancerous practice at the time of demanding indulgences, money donated to the church in exchange for forgiveness of one’s sins. Too much Catholicism, or so it seems, is detrimental to a nation’s fiscal health, even today in the 21st century; indulgences then, and an inability to properly manage public finances now.

Here, one of the most important issues worth discussing is the issue of fiscal transgressions. When viewed from that perspective, massive tax evasion and widespread bribery which particularly witness Italy and Greece can be viewed as stemming from a cultural tradition of offering money to have one’s transgressions overlooked. In other words, sinning is okay, even if it is mostly fiscal these days.

Before the idea of considering this analysis as a serious case of religious stereotyping sets in, it is important to point some very important nuances that break the pattern suggested above. Take Slovakia. The Slovaks are Catholics and have always had a vastly superior work ethic, contrary to Max Weber’s notions or the Martin Luther rule presented above.

And what about Italy? As a matter of fact, there isn’t a single entity called Italy. There are two completely different Italy’s to speak truthfully. In the one camp is the old Kingdom of Naples and the Two Sicilies, starting at Rome stretching south. As the Italians themselves asserted, it remains a corrupt sinkhole. Then there is the other camp, northern Italy, including Tuscany, which is one of best-run and most efficient industrial economies on earth. And of course they’re both Catholic.

Here is the final question. How to resolve the riddle? It seems simple. This time is not religion but biology. Think of it as a blend of the adaptation principle from biology. Even though Martin Luther failed to take hold in these places, even core Catholic areas like France, Slovakia, Austria and northern Italy have gradually adapted the economic values, work ethic and integrity of him and John Calvin. That makes Martin Luther today a fiscal prophet in high standing in Catholic as well as Protestant Europe.