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Keynes toward Europe in Crisis
― How Did He Address and Would Have Addressed It? ―
1. Introduction
2. Keynes’s Relief Plans for the Ruined Europe
2.1 Keynes’s Grand Vision in the International Scene
2.1.1 A Grand Design for Europe after World War 1
2.2 Keynes’s Relief and Reconstruction Plan for Europe
Initial Stage
Keynes’s Talk with Acheson
The “Central Relief and Reconstruction Fund” Plan
2.3 Keynes’s Response to the UNRRA
2.4 What Proceeded after World War 2
Marshall Plan
If Story
3. The Euro Crisis
3.1 Critical Situations of the Euro System
European Integration in Progress
Spread of the Euro Crisis
Possible Consequences of the Euro Crisis
3.2 Two Underlying Causes of the Euro Crisis
3.2.1 Wicksellian Cumulative Process, Yen Carry Trade and the Financial Globalization
3.2.2 Widening Disparity in Real Economy between the Member Countries
3.3 Keynes’s Likely Response to the Euro Crisis
For EPU
For EC
Against Euro System
Against Laissez-Faire Financial Globalization
4. Conclusion
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1. Introduction
Keynes and his contemporaries embarked upon their activities in the years that saw the world endeavoring to restore the “Pax Britannica”, which had collapsed subsequent to World War 1. But this endeavor came to grief. And as confusion and conflict deepened, the world was engulfed by World War 2. It was under such circumstances that Keynes emerged as the figure exerting the greatest influence as economist, economic policymaker and international system planner.
After his death, moreover, Keynes was to inspire, through the General Theory (1936), a deep-reaching transformation that came to be known as the “Keynesian Revolution” in the fields of macroeconomics, economic policy and social philosophy in the post-war world. Small wonder that the third quarter of the 20th Century is often referred to as the “Age of Keynes”.
In this paper Keynes as an international system planner is examined in relation to Europe in crisis. Two crises are pertinent here. One is the crisis of Europe in the interwar period, while the other is the crisis of Europe now being caused by the Euro problem. The nature of crisis in the two cases is quite different, of course. The former is the ruined Europe in which the problem was how to rebuild it from a scratch, the latter the institutionally malfunctioning Europe and the problem was how to reform it. And yet the two crises are more or less related historically and institutionally.
This paper sets out to argue that fresh light can be brought to bear on these crises by examining Keynes’s involvement in addressing Europe in crisis. Keynes died in 1946, so it might seem mere conjecture to approach the Euro in crisis in connection with Keynes. This is not, in fact, the case. Before going on to details, it might be useful to outline the main idea behind this paper.
Keynes was greatly involved in the relief and rehabilitation of Europe.
Firstly, in 1918 he evoked a grand vision for the ruined Europe as composed of (i) a coal cooperation, (ii) a free-trade union, and (iii) a sort of monetary system. (i) is related to the European Coal and Steel Cooperation, (ii) to the EC, and (iii) to the Euro.
Secondly, in the 1940s he put forward a grand plan including (i) an international relief organization, (ii) an international buffer stock organization and (iii) an international monetary system. (i) could be taken as a precedent for the Marshall Plan-cum OEEC, which was to be the base for the ECC and the EC. (iii) might have worked for Europe as well.
Thus Keynes was not only persistent in addressing the problem of how to relieve and rehabilitate the ruined Europe, but now also proves relevant in addressing the Euro crisis. It is worth considering how Keynes would have thought of the Euro crisis, which is not just a currency problem but a potentially catastrophic one, for, if the Euro failed, it would trigger a second Lehman Shock. Invoking Keynes might afford us a hint or two for getting the EU out of trouble.
The paper runs as follows. In Section 2 Keynes’s relief plans for Europe in World Wars 1 and 2 are examined, followed by an explanation of both what really happened after World War 2 and how Keynes would have acted if he had lived long.
In Section 3 the present Euro crisis is discussed. After describing the critical developments, the main causes of the Euro crisis are reviewed, and Keynes’s likely response to the Euro crisis will then be construed.
