Rationality, Emotion, and the Future of Europe

This is a big weekend in the history of European integration and it is likely to be a defining moment for ‘Europe’. That significance is easy to miss. The urgent often overshadows the important. And this weekend reeks of urgency. The Greek government has listed the reforms it can deliver in exchange for financial rescue. It has also described how it would like that rescue to unfold. Now the Eurogroup has to decide whether these proposals are sufficient for the start of fresh negotiations. In doing so, Europe’s politicians have to wrestle with arguments rooted in rationality and emotion; they have to weigh the costs and benefits of yet another Greek bailout package while at the same time dealing with the frustration and bitterness that arose during the last set of talks (not to mention the last five years of bailouts).

The mistake is to assume that policymakers can simply choose between these perspectives – either voting their pocketbooks while setting their emotions aside, or throwing a tantrum and accepting the consequences. In a one-shot game, that might be sufficient. But we know from experience that Greek bailouts are iterative and involve multiple painful encounters. This latest proposal will not be any different even under the most optimistic scenario. Moreover, such iterative bargaining is not limited to Greece’s troubled financial circumstances. What is true for the Greek crisis is also true for the ups and downs of European integration and hence the European Union itself. Rationality and emotion must be reconciled for any longer-term arrangement to be sustainable.

An even greater error is to assume that there is a clear hierarchy of rationality over emotion. According to this view, any iterative game is a series of one-shot negotiations – the ‘long run’ is a collection of ‘short runs’ – and so politicians just have to do the best they can and move on. That is not how human relationships work. Emotions lie at the heart of perceptions of legitimacy; they tell us what is just and fair, who to trust and how. When shared, these perceptions of legitimacy open up new worlds of economic possibility. They are the bedrock for the modern economy in Ernest Gellner’s theory of nationalism; they are the crucial distinction between southern and northern Italy in Robert Putnam’s theory of social capital; and they are the building block for integration in Gunnar Myrdal’s theory of the international economy.

The challenge Europe’s policymakers face is not just to choose between a rational and an emotional response to the most recent Greek proposals and it is not enough for them to placate or ignore hurt feelings until the crisis has passed. They have to find a way to lay the foundations for some kind of emotional reconciliation between the Greeks and their creditors that can restore legitimacy to their interdependence. This is going to be difficult because it is so easy to fall prey to the idea that there is a rational solution to the current situation and this solution should trump any emotional considerations – not just now but also in the future.

From an ‘rational’ perspective, there is no reason for Europe to not to come together around the most recent documents delivered by Greece. Sure the proposals are not perfect. They do not account for the impact of capital controls on the Greek economy, they leave a large question mark over what to do with the Greek banking system, and they ring fence special interests in Greek society (like very small islands off the beaten track) in ways that suggest something less than a complete capitulation to the demands of the creditor countries. Nevertheless, the quantifiable differences between what the Greeks are offering and the creditors are demanding on the reform side, and between what the Greeks are requesting and the creditors are willing to concede on the financial arrangements, are tiny compared to the potential costs of a Greek exit from the euro.

By contrast, the ‘emotional’ arguments seem intractable (and therefore easy to ignore). Large numbers of senior German lawmakers are fed up with the Greeks and they have no trust that Greek politicians will abide by their commitments this time any better than they have in the past. Similarly, political leaders in many of Europe’s smaller and peripheral countries are upset by what they see as a combination of poor behaviour and special treatment; these other countries were not offered multiple bailouts – either during the most recent crisis or, for some, in the aftermath of the fall of communism. Instead they made deep sacrifices to achieve macroeconomic adjustment; where the wounds have healed they still bear the scars. From this ‘emotional’ perspective, Europe will have to accept the consequences of a Greek exit from the euro. It is a risky scenario and yet still better than the alternative of being held hostage or subject to blackmail.

The test of this weekend will be in how Europe’s political leaders handle these emotional considerations. If they embrace rationality and sweep emotions under the carpet, then the best they can hope is to buy a temporary respite. Such expedience will come back to haunt the process of European integration over time even if this latest bailout somehow resolves the crisis for Greece. The long run does not have to be experienced as a succession of short runs, but Europe’s policymakers can choose to do so. The alternative is for Europe’s politicians to bolster the legitimacy of ‘Europe’ as a framework for interaction between peoples over the longer term. That big challenge is unlikely to get much attention in the struggle to meet pressing deadlines. It is a defining feature of this weekend’s deliberations nonetheless.