The rise of Homo deus and the impact on education

Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari, a Professor of History at Hebrew University, Jerusalem, is a thought-provoking book that builds on his previous book, Sapiens.  In Sapiens, Harari described how humans have been successful through our ability to cooperate in large groups, helped by fictional stories like religions and ideologies.  As a result, the challenges of famine, plague and war have largely been reigned in.  In 2020, more people will die from obesity than from covid-19. For most people, McDonald’s and Coca Cola pose a large greater threat to their health than any virus.

Artificial intelligence, made possible through breakthroughs in biology and information technology, is turning our focus to the challenges of achieving bliss, immortality and divinity.  The title Homo deus refers to humankind taking up the powers to create humans and animals according to our wishes, traditionally the preserve of gods.

This has profound implications on our lives. Our humanistic world view changes to an algorithmic world view.  Humanism says that human feelings and our free will are the highest authority in the world. However, stories about free will are likely to be increasingly challenged, because human feelings are just biochemical algorithms shaped by millions of years of evolution.  As we gain more understanding of these algorithms, we will understand people much better than we can understand ourselves.

This integration of computer science and life sciences lead to the uncoupling of intelligence and consciousness. They are coupled in humans, but as we develop artificial cognitive and emotional intelligence, the two will be increasingly separated. We are not going to build machines any time soon that have feelings like us: that’s consciousness.  But we have already built biochemical sensors, machines and data-processing networks that can record our feelings better than we know them ourselves: that’s emotional intelligence.

Humans can’t handle these massive amounts of data generated by biochemical sensors.   So gradually, more and more decisions and responsibilities will be transferred to machines.

Harari calls this trust in the power of data and algorithms dataism (after theism and humanism). Its followers put their faith in information as the highest source of value. As is often the case, medicine is a frontrunner.  Progress in genetics and biotech will make that decisions about our health will be increasingly be made by algorithms.  An early example is the decision by Angelina Jolie to undergo a double mastectomy.

However, we are likely to see a similar shift in authority in other fields. For example, in online learning, data are collected on how long each learner spends on each page, which exercises are done successfully, and which cause problems.  Through learning analytics, we can assess very accurately which students are at risk of dropping out and offer them additional support.  In the next step, which is already possible, online learning will be connected with students’ senses so instructional designers can see where students are really interested and where their attention slips.  In the near future, their learning will be connected to internal sensors, measuring blood pressure, eye movements, heart rate etc.  As a result, a learning provider will be able to see exactly where a student got excited, angry, bored etc.  At the end of a course, the course provider will know the student much better than the student knows him/herself.  Companies will be able to measure the emotional impact of everything you read or watch.  They will know exactly who you are and how to press your emotional buttons.  For now, a teacher or professor still makes the decision to pass or fail the student, but how long still?  If algorithms can get a much better insight in what a student has done and learned, why would you still need a teacher?  Authority in education will shift from individual humans to networked algorithms.

However, access to this is bound to be unequal.  There will be a small super elite with access to the master algorithms and the corporate profits.  The rest of humanity will simply be tools in their vast schemes. The result of this might be that, in the 21st century, most men and women will lose their economic value. Many may find themselves in a new class of useless people. We will need less and less need for people to work in the fields, work in factories and offices or fight in wars.  People will struggle to find purpose in life, as work, parenting and entertainment are regulated by AI.  Will people be happy and how will they find purpose in life?  Might drugs, entertainment and computer games be used to keep people in an eternal bliss?  Chris Andrade’s Dignity offers a glimpse into what it means for communities to lose their sense of purpose, that was traditionally been provided by work, church and family.  This rising socio-economic inequality will gradually translate into biological inequality, as this class of super rich people will have the means to upgrade themselves via genetic engineering and biological implants. This evolution risks making inequality within and between societies permanent, as the traditional ways of bridging the gap (cheap labour, education) risk becoming less relevant.

Does it necessarily follow that AI will take over?  Can we stop this evolution?

Healing and safety are the initial justification for every upgrade.  You can’t be against being healthy or being safe, if not for you, for your loved ones.

Find some professors experimenting in genetic engineering or brain–computer interfaces and ask them why they are engaged in such research. Likely they would reply that they are doing it to cure disease. ‘With the help of genetic engineering,’ they would explain, ‘we could defeat cancer. And if we could connect brains and computers directly, we could cure schizophrenia.’ Maybe, but it will surely not end there.

Secondly, in the days of European imperialism, conquistadors and merchants bought entire islands and countries in exchange for some coloured beads. As observers of the tech industry like Jaron Lanier have been pointing out for many years, in the twenty-first century our personal data is probably the most valuable resource most humans have to offer, and we are giving it to the tech giants in exchange for email services and funny cat videos. Most people have no clue of the value of their data and sleepwalk into the era of dataism.

Thirdly, most important evolutions in our society are not the result of elections.  Nobody voted about the structure of the internet. Similarly, decisions about AI are made by a small group of people.  Technology is not deterministic.  Technological inventions can be used to make a democratic, communist or fascist system, but they are unlikely to be stopped.

What are some of the implications of Homo deus for our education systems?

  1. Inequality is likely to rise. Education for all is a critical counterweight to develop a well-informed and critical mass of citizens that can make sense of the evolutions in our society.
  2. The merger of ICT and biology. STEM subjects will rise in importance. Scientific literacy and basic programming skills are absolutely crucial to understand our society and stay relevant.
  3. The pace of change is accelerating. People need to be trained and re-trained regularly and will need to be able to cope with the uncertainty and have the mental flexibility to re-design themselves.
  4. Many jobs will disappear and might be replaced by new jobs. We mustn’t be complacent and assume that, because previous revolutions did not lead to massive job losses, that it will the same now. Education systems should regularly analyze how our society is evolving and be much bolder in designing curricula.
  5. The separation between a school and work life is blurring. It becomes increasingly ridiculous to separate people’s lives into a school life and a work life. It makes much more sense to have brief periods of intensive learning, followed by internships and jobs, followed by sabbaticals and new periods of learning.

The Road to Unfreedom

The Road to Unfreedom, written by Timothy Snyder, a professor at Yale University in the United States,  is a persuasive, revealing but disturbing book that links the present political problems in Europe, Russia and the United States.

The central idea in the book is two ways of living in time, two ways of translating facts into stories.  Both notions are false and lead us towards authoritarianism, hence the title “road to unfreedom”.  The two stories are the Politics of Inevitability and the Politics of Eternity.

In the politics of inevitability, there is one fixed future without alternatives in which life will be better for everyone.  It is the “end of history” discourse.  History is moving towards a clear end. The problem is that it blinds societies for the inevitable unattractive alternatives.  For example, if you believe that the internet only brings enlightenment, you don’t see the negative influence the internet has on democracy and inequality.

In the American capitalist version of this story, nature brought the market, which brought democracy, which brought happiness. In the European version, history brought the nation, which learned from war that peace was good, and hence chose integration and prosperity.  Before the collapse of the Soviet Union in 1991, communism had its own politics of inevitability: nature permits technology; technology brings social change; social change causes revolution; revolution enacts utopia.

Accepting that the future is fixed is to deny individual responsibility for making change.  The main problem of the politics of inevitability is that it opens the door to something worse. Financial or economic shocks may shift countries from a politics of inevitability to a politics of eternity.

In the politics of eternity, there is no future, only a nostalgic loop back to a glorious past.  Time is not a line but a circle.

The natural successor of the veil of inevitability is the shroud of eternity, but there are alternatives that must be found before the shroud drops. If we accept eternity, we sacrifice individuality, and will no longer see possibility.

Russia has reached the stage of eternity first.  It went through the politics of inevitability during the 1990s to reach the politics of eternity with the rise to power of Vladimir Putin.  Hydrocarbons, oligarchy and a lack of succession mechanisms drove this fast evolution towards eternity.

Europe and the USA are in a politics of inevitability and risk moving to a politics of eternity. Russia actively intervenes in European and American politics to realize this move to eternity, but there are also internal factors both within Europe and the United States: inequality, mythical representations of the past, oligarchy, a reliance on hydrocarbons and the demise of an independent and critical press, the weakening of institutions and the disregard for facts and experts.

The West is vulnerable as it believes in the notion of a glorious nation state past, whereas, in fact, European countries moved to European integration after their empires collapsed.

The politics of eternity is attractive for despots as it offers a solution to the challenges of succession and the inequality of wealth.  In a politics of eternity, elections are just a ritual and the leader comes from outside the system.  By removing the succession question, the immediate future is taken away and replaced by an endless loop of outside leaders.  Secondly, each person has its fixed place within the society, like cells in a body.  Therefore, there is no space for personal advancement which is convenient for the extreme rich, in Russia or other regions with high inequality.

Rather than discuss reforms, eternity politicians designate external threats. Rather than presenting a future with possibilities and hopes, they offer an eternal present with defined enemies and artificial crises. For this to work, citizens have to meet eternity politicians halfway. Demoralized by their inability to change their life, they must accept that the meaning of politics lies not in institutional reform but in daily emotion. They must stop thinking about a better and prefer the constant invocation of a proud past.

In the politics of eternity, facts don’t matter.  Everything is a lie and in such a world, your lies are as much worth as someone else’s lies.  To end factuality is to begin eternity. If citizens doubt everything, they cannot see alternative models beyond the country’s borders, cannot have sensible discussions about reform, and cannot trust one another enough to organize political change.  Putin’s direct assault on factuality is called implausible deniability. By denying things that are obviously true, he moves the focus from reporting the facts to a reality show about the men in power. Russian media create a climate in which news is entertainment.

The politics of eternity requires and produces problems that are insoluble because they are fictional. For Russia in 2012, the fictional problem became the designs of the European Union and the United States to destroy Russia.  It was best not to speak of actual threats, since discussing actual enemies would reveal actual weaknesses.  Russia’s real geopolitical problem was China. The West was chosen as an enemy precisely because it represented no threat to Russia.

The EU was presented as an existential threat to Russia, because it enforced law and generated prosperity. Russia has been trying to define success in this war not in terms of prosperity and freedom but in terms of sexuality and culture, and that the European Union (and the United States) be defined as threats not because of anything they did but because of the values they supposedly represent.

The essence of Russia’s foreign policy is a strategic relativism: Russia cannot become stronger, so it must make others weaker.  Russia sees international politics as a negative-sum game, where a skillful player can win by losing less than everyone else. The simplest way to make others weaker is to make them more like Russia.

In 2013, Russia began to influence its European neighbors into abandoning their own institutions and histories. It did so by supporting the extreme Right within EU member states.  It stimulates a discourse that harks back to a glorious, but fictional past of a wise and prosperous nation state. They do this through cyberwarfare, supporting extremist organizations and foreign policy.

Useful idiots like Farage and Le Pen propose a return to a nonexistent past, when Europeans lived in nation-states without immigrants. They are eternity politicians. Both Great Britain and France had been maritime empires that, as their colonies won independence, joined a European integration project. The European Union was a necessity for crumbling empires that lost colonial wars. Because they had no modern history as nation-states, an exit from the European Union would be a step into the unknown rather than the homecoming promised by nationalism.

Cyberwarfare is the preferred instrument, using cyber-attacks and controlling the online conversation by armies of bots.  The same bots were used in Ukraine, Brexit, US elections and various European elections. Twitter accounts that posted on Brexit were linked to Russia’s Internet Research Agency—later, every single one of them would also post on behalf of Donald Trump’s presidential campaign.  About a third of the discussion of Brexit on Twitter was generated by bots—and more than 90% of the bots tweeting political material were not located in the United Kingdom.

Russia bombed Syria to generate refugees, then encouraged Europeans to panic in order to weaken the German government and help the AfD.  Russia supplied not just the refugees themselves, but also the image of them as terrorists and rapists.  Russian-backed social media in Germany the Alternatif fur Deutschland (AfD) as the savior of Germany.

The American politics of inevitability gave way to a politics of eternity with the election of Trump. As in Europe, there are the vulnerabilities of the United States created by a politics of inevitability that are exploited by an aggressive Russian foreign policy.

It was in the places where the American dream had died that Trump’s politics of eternity worked.  Also, after the financial crisis of 2008, the American local press collapsed, leaving Americans to the internet for their information.  Few anticipated that the internet would be used against them.

Trump is a perfect politician of eternity. He called for a return to the past, to a time when America was great.   He creates a fantasy of the innocent us and the guilty then with the fictional idea of the wall.  The fictional creation “Donald Trump, successful businessman” fills the public space with untruth.  He never apologizes for lies, since doing so would be to recognize that such a thing as truth exists.  His claims to be the eternal victim are characteristics of a politics of eternity.

Russia’s intervention in the 2016 U.S. election was not just an attempt to get a certain person elected. It was also the application of pressure to the democratic structure by making the system slightly less representative, tilting the system towards authoritarianism. The victory of a Russian-backed candidate could be less important, in the long run, than the erosion of democracy.

Is there a way off the road to unfreedom?  There is, but Snyder is pessimistic.  The conclusion of this tale lies in the acknowledgment that Putin’s strategy has been very successful in shaking our faith in the sanctity of fact and expert knowledge.  The way to leave the road to unfreedom is through a politics of responsibility:

If we see history as it is, we see our places in it, what we might change, and how we might do better. We halt our thoughtless journey from inevitability to eternity and exit the road to unfreedom. We begin a politics of responsibility.

What does it mean to be responsible?

The politics of inevitability takes responsibility for the future away. Responsibility means discussing political choices and possible futures, realizing that our individual choices matter. It means accepting that people have ideas that don’t fit our preconceptions and looking for compromise. It means realizing how important conventions and mutual respect are as a way of maintaining order and civility — and how easily and carelessly they can be smashed.

We must keep digging for the facts and exposing falsehoods.  We should mistrust one-sided accounts of the past or the present.

Learn history: not in order to predict the future, but to free yourself of the past and imagine alternative destinies.  Yuval Noah Harari, Homo deus

A politics of responsibility would have to be about the future, not about a non-existing past. It should be about an active production of facts, investigative journalism and promoting quality local media.  It is also about investing in high quality education and renewable energy and cherishing the institutions that make it possible for individuals to act responsibly.

Although the book is mainly about Russia, Europe and the United States, the ideas of the book are relevant for developing countries as well. Snyder also highlights the importance of a quality public education system to develop critical citizens.

The Information

the-information-gleickWhat is Information? Is it inseparably connected to our human condition? How will the exponentially growing flow of information affect our societies?  How is the exploding amount of information affecting us as people, our societies, our democracies? When The Economist talks about post-truth society, how much of this trend is related to the failure of fact-checking, increasing polarity and fragmentation of media and the distrust of ‘experts’?  The Information starts with a reference to Borges’ Library of Babel:

The Library of Babel contains all books, in all languages.  Yet no knowledge can be discovered here, precisely because all knowledge is there, shelved side by side with all falsehood.  In the mirrored galeries, on the countless shelves, can be found everything and nothing.  There can be no more perfect case of information glut. We make our own storehouses.  The persistence of infomation, the difficulty of forgettting, so characteristic of our time, accretes confusion. (p. 373)

In The Information, James Gleick takes the reader on a historical world tour to trace the origins of our ‘Information Society’, basically an old term that keeps on being reinvented. It’s a sweeping and monumental tour that takes us from African drumming over alphabets, the beginnings of science, mathematical codes, data, electronics to the spooky world of quantum physics.  He shows how information has always been central to who we are as humans. He points to foreshadowings from the current information age such as the origin of the word “network” in the 19th century and how “computers” were people before they were machines.

shannonThe core figure in the book is Claude Shannon. In 1948 he invented information theory by making a mathematical theory out of something that doesn’t seem mathematical. He was the first one to use the word ‘bit’ as a measure of information. Until then nobody would have though to measure information in units, like meters or kilograms. He showed how all human creations such as words, music and visual images are all related in the way that can be captured by bits. It’s amazing that this unifying idea of information that has transformed our societies was only conceptualized less than 70 years ago.

It’s Shannon whose fingerprints are on every electronic device we own, every computer screen we gaze into, every means of digital communication. He’s one of these people who so transform the world that, after the transformation, the old world is forgotten.” That old world, Gleick said, treated information as “vague and unimportant,” as something to be relegated to “an information desk at the library.” The new world, Shannon’s world, exalted information; information was everywhere. (New Yorker)
At its most fundamental, information is a binary choice.  A bit of information is one yes-or-no choice. This is a very powerful concept that has made a lot of modern technology possible. By this technical definition, all information has a certain value, regardless of the content of the message.  A message might take 1.000 bits and contain complete nonsense. This shows how information is at the same time empowering, but also desiccating. Information is everywhere, but as a result, we find it increasingly hard to find meaning.  Has the easy accessibility of ‘facts’ diminished the value we assign to it?
Despite the progress in producing and storing information, we have remained human in our ability to filter and process information. Gleick gives the example of his own writing process:
The tools at my disposal now compared to just 10 years ago are extraordinary. A sentence that once might have required a day of library work now might require no more than a few minutes on the Internet. That is a good thing. Information is everywhere, and facts are astoundingly accessible. But it’s also a challenge because authors today must pay more attention than ever to where we add value. And I can tell you this, the value we add is not in the few minutes of work it takes to dig up some factoid, because any reader can now dig up the same factoid in the same few minutes.
It’s interesting because this feeling of the precariousness of information is everywhere. We think information is so fragile, that if we don’t grab it and store it someplace, we’ll forget it and we’ll never have it again. The reality is that information is more persistent and robust now than it’s ever been in human history. Our ancestors, far more than us, needed to worry about how fragile information was and how easily it could vanish. When the library of Alexandria burned, most of the plays of Sophocles were lost, never to be seen again. Now, we preserve knowledge with an almost infinite ability.
Redundancy is a key characteristic of natural information networks. As Taleb taught us, decentralized networks are much more resilient than centralized structures.  Every natural language has redundancy built in. This is why people can understand text riddled with errors or missing letters and why they can understand conversation in a noisy room.  The best example of a natural information network may be life’s genetic make-up:
“DNA is the quintessential information molecule, the most advanced message processor at the cellular level—an alphabet and a code, 6 billion bits to form a human being.” “When the genetic code was solved, in the early 1960s, it turned out to be full of redundancy. Some codons are redundant; some actually serve as start signals and stop signals. The redundancy serves exactly the purpose that an information theorist would expect. It provides tolerance for errors.”
 Technological innovation has always sparked anxiety. Gleick quotes Plato’s Socrates that the invention of writing “will produce forgetfulness in the minds of those who learn to use it, because they will not practice their memory.” (p.30) Mc Luhan recognized in 1962 the dawn of the information age.  He predicted the confusions and indecisions the new era would bring and wrote about a ‘global knowing’.  Thirty years before H.G. Wells wrote about a World Brain, a widespread world intelligence, taking the form of a network.  Wells saw this network as a gigantic decentralized encyclopedia, managed by a small group of ‘people of authority’. The network would rule the world in a ‘post-democratic’ world order.
Gleick writes that we’re still only at the start of the Information Age. Some effects on us and on our societies will only become apparent in the coming decades. Will the internet continue to evolve into a world brain or will it splinter into various parts. Will the atomisation of our media into countless echo chambers continue and what kind of society will it lead us into?
The library will endure; it is the universe. As for us, everything has not been written; we are not turning into phantoms. We walk the corridors, searching the shelves and rearranging them, looking for lines of meaning amid leagues of cacophony and incoherence, reading the history of the past and of the future, collecting our thoughts and collecting the thoughts of others, and every so often glimpsing mirrors, in which we recognize creatures of the information. (p.426)

The Euro Crisis and its Aftermath (Jean Pisani-Ferry)

$_35Until 2013, Pisani-Ferry was the director of Bruegel, a think-tank.  In his book Jean Pisani-Ferry recalls the story of the euro from “the day it ceased being boring” and explores the underlying causes of the euro crisis.

The introduction of the euro was intended to create a forefront for more political and economic harmonisation among the adopting countries.  However, in the mid-2000s, it became gradually clear that national economies were diverging rather than converging.  Northern European economies like Germany were doing penance, running surpluses and accumulating savings, while countries in Southern Europe (incl. Ireland) went through a period of euphoria and saw consumption and debt rising.

After the introduction of the euro, these countries experienced a ‘golden decade’. They experienced a strong drop in interest rates, which reduced their debt burden and opened credit floodgates.  Resulting increases in wages and prices created higher inflation than in the northern countries.  Interest rates were the same across the Eurozone, but prices of nontradable goods and services such as houses and restaurant meals were not.  As a result, inflation rates were also not the same and the real cost of credit (the difference between the interest and the inflation rates) was much lower in the southern countries and Ireland.  In Spain, poor households bought houses they could hardly afford, helped by the now infamous cajas, the regional savings banks, creating their own version of the subprime crisis.

Then, on 16 October 2009 the euro stopped being boring.  That day, Greek prime minster George Papandreou confessed that Greek debt and deficit numbers were much worse than reported.  Investors suddenly realised that Greek debt was more risky than German debt and the spread between the two rose to 4%.  Greece revealed the incompleteness of the European construction and the strong disagreements about how to complete its architecture.

The negative feedback loop between banks and their sovereigns (countries) became apparent, the so-called ‘doom loop’.  Why is this relation problematic? Banks usually have large portfolios of debt issued by their countries.  At the same time, they depend on their sovereign for assistance in case things turn sour.  When investors doubt a country’s guarantee to save its banks, these banks can see their capital flows come to a sudden stop.

An example. The Spanish state was borrowing from the Spanish commercial banks which, in turn, borrowed from the Spanish central bank, which, in turn, borrowed from the ECB.  Meanwhile, private money flowing out from Spain was being deposited with German (or other northern European) banks, which, in turn, deposited it with the Bundesbank, which in turn lent it to the ECB.  The European system of central banks had become a sort of gigantic artificial heart that pumped back into southern Europe money flowing out from it in search of northern safety (p.145).

“Banks may be European (or global) in life, but they remain national in death.”

This explains why Ireland, with a debt-to-GDP ratio of only 25% got into problems. Its banking system was 8 times the size of its GDP.  Similarly, Spain’s problem was not a fiscal one, having low debt and running current account surpluses.  Its problem was that Spanish banks accumulated lots of loans that became non-performing when real estate prices plunged.  Add to this that the housing boom in Spain created a very unbalanced economy in which the non-tradable sector had expanded beyond reason at the cost of the tradable-goods sector.

Overall, debt levels and deficits in the Eurozone are much lower than those in the US or Japan.  What makes Eurozone debt vulnerable (less internal debt), faces a grim long-term demographic outlook (low fertility rates and not enough migration) and faces a lack of competitiveness (in the south).

Pisani-Ferry describes how Eurozone leaders throughout the crisis devised piecemeal solutions that were time and time again overtaken by reality.

The introduction of a common currency removed external devaluations as a way to inflate away debt and restore competitiveness as a tool from the toolbox. Milton Friedman compared devaluating a currency with daylight saving time.  It’s much easier to change time than to ask everyone to change their habits. In the same way, when a currency is overvalued, it is easier to devalue the exchange rate than to modify all wages and prices individually. By entering the Eurozone, member countries gave up this popular weapon, leaving them only the painful option of internal devaluation.

Much has been achieved since the outbreak of the euro crisis.  Under massive market pressure and by overcoming deep divisions, countries have agreed on new rules and created new institutions.  These solutions increased the power of the European institutions.  For example, the Commission received an ex-ante near-veto on national budget plans, including automatic sanctions for sinners. However, as economic prospects have improved, the political sentiment has clearly deteriorated.  Politics lag behind economics, which in turn, lag behind market developments.

On the other hand, solutions so far have only been found under the pressure of urgency and in an attempt to avoid the worst.  In Pisani-Ferry’s words, Europe has consistently displayed a strong sense of survival, but it has equally consistently failed to display a sense of common purpose (p.175).  The sense of survival comes from a realisation that a unified Europe is the only chance for Europe’s nations to remain significant actors in the world economy and to contribute to the shaping of global rules. The main challenge of European policy makers is to chart the road to continued relevance and to convince European citizens that it is the right road to take.

So far, solutions for the Eurozone crisis (financial firewall, fiscal treaty, building blocks of banking union) have much of an adhocracy.  Decisions on policy moves were not taken on the ground whether they would improve outcomes, but whether they were needed to avert disaster, like house owners only contemplating repairs when the house is about to collapse.

For Pisani-Ferry, a sustainable solution to deal with all the following aspects:

  1. The ECB’s inflation mandate of an average inflation rate across the Eurozone close to 2% implies a higher inflation rate in Northern Europe for several years.  During the first 12 years of the Euro, inflation rates were higher in Southern Europe.  The correction process has started for wages, but prices lag behind in the South because of the high cost of credit and the fact that many sectors are not open to competition.  A side effect of low interest rates is that non-functioning firms still get access to cheap credit, preventing the process of creative destruction, which would reduce supply, allowing others to raise prices, resulting in inflation.
  2. The EU’s budget comprises 1% of its total GDP and negotiated (and fixed) for periods of 7 years. This leaves little room for flexibility.
  3. For the dollar, US Treasuries are the safe assets.  For the Eurozone, 10-year German government bonds (‘Bunds’) are the de facto safe assets. This is an advantage (‘rent’) for Germany, as it can borrow money at lower rates than other countries. Because of this privilege, Germany should take up special responsibilities such as acting as an insurer for the whole Eurozone or sharing this rent with other countries through issuing Eurobonds.
  4. Gradual acknowledgement of reality of unsustainability of Greek debt, acceptance of debt restructuring and design of systematic way of dealing with debt crises.
  5. Acceptance of ECB as a lender of last resort.
  6. Strengthen the democratic character of the EU.  Germans, for example, are particularly underrepresented in the parliament in comparison to citizens from smaller countries.
  7. Governance reform.  The most important one.

“The euro area is not equipped with a government, but with a series of partial powers.  The ECB has decision-making capacity in its important, but limited domain (it makes full use of it).  The Commission has been given a defined mandate of oversight of national policies (it generally fulfils it) and a broader mission to chart a way through the policy challenges (it sometimes fulfil it and sometimes forgets it). Berlin exercises leadership (or not).  Paris tries to balance it (effectually or not).  Bratislava or Helsinki insists on specific points that are close to their hearts (and generally push through a minor concession).  Rome matters when the prime minister has stature (not always the case).  And the president of the Eurogroup chairs the meetings of finance ministers (and does little more).  Europe’s governance is reminiscent of Blaise Pascal’s definition of the universe: a sphere, the centre of which is everywhere…” But unlike Pascal’s universe, few observers, if any, see the hand of God in its design” (pp.165-166)

Currency unification has led European states to an unknown territory in which national borders are less defined as they used to be.  The euro has created a community of fate.  The EU and the Euro zone need a common vision on their future.

Basically, there are two models for the Eurozone:

  • An agglomeration model that accepts concentration of activities in certain areas, for example manufacturing in northern Europe.  This model comes with mobility of labour, portable social rights, acceptance of national current account deficits and surpluses and a full banking union.
  • A rebalancing model that focuses on limiting differences among countries.  This comes with attempts to southern re-industrialisation. This is the logic of the Structural Funds.

The agglomeration model is economically more efficient.  Not every country is good at everything and the agglomeration model stimulates countries to specialise.  However, this model is likely to lead to wider (but not necessarily permanent) disparities in GDP/person and would require euro-area-wide taxation and transfer systems. Also, the agglomeration model requires a stronger political community, something which still needs to materialize, if it ever will.

A permanent solution for the Eurozone’s travails would need to answer fundamental questions about the union:

  1. Are countries and their citizens prepared to embrace a degree of labour, product and capital market integration that is needed for a monetary union to function?  Current discussions about the scaling back the Schengen union and the rise of extreme right suggest not.
  2. Are countries and their citizens ready for a fundamental redefinition of the fiscal framework that would create a predictable regime for state insolvency and introduce a degree of risk-sharing through the partial mutualisation of sovereign liabilities?
  3. Is the euro area willing to accept a degree of contingent redistribution across countries or even individuals in order to help smooth adjustment within a monetary union, for example through a common budget or through contingent transfer mechanisms?
  4. Is the euro area for institutional reform that would equip it with effective decision-making capacities (and budget) within it fields of competence?

In a democracy, power should be limited, but not weak (Tommasso Padoa-Schioppa)

Pisani-Ferry’s book tremendously helps to put the Euro crisis into perspective.  It enables the reader to understand the causes and the responses. In my case, it helped to change my opinion that the crisis was not so much (only) a consequence of southern (mainly Greek) profligacy, but a result of economic imbalances resulting from an incomplete monetary and fiscal union.