In the 1970s came a school of economic thought popularized by the German-born British economist, E.F. Schumacher called "Small is Beautiful". This itself was the product of much work done by Leopold Kohr, Schumacher's teacher, and the author of the seminal work "The Breakdown of Nations".
The simplest level of the ideas of the small is beautiful movement is that "when something is wrong, something is too big". The implications of this are profound. Innovation, for example, usually flows from small companies, not from large ones. Mergers of large companies almost never deliver the returns that they promise, In the realm of ideology, the creation of massed -isms is a reflection of a social unit that is unable to create bridges across different aspects of the human condition. In short, the alleged benefits of economies of scale are largely fictitious.
The current debate about the future is being made in increasingly apocalyptic terms. The crisis is creating a feedback loop of loss of confidence, "Chicken Licken" really seems to be in charge. Yet that is not to say that we can just continue as we have been. Neither can we continue to destroy nonrenewable resources- the resource capital of the planet- as though it was simply a contributor to growth, with no other cost. Sustainability has become a cliche, but the depletion that it represents is still a critical issue for the future of our planet and ourselves.
In the current crisis it is already clear that banks that were too big to fail, were in fact simply too big. Yet the manner of their rescue- consolidation and nationalization did not end the problem- it simply bankrupted the countries instead. Now the impact of that financial catastrophe is undermining the European single currency- which is clearly too large for the resources available.
The response at each point has not been to begin deconstruction, but to rope more and more power and resources under one roof. The concentration of power into the hands of the key leaders of the European Union has come at the expense of the indebted periphery- since the crisis began, the leaders of all of the PIIGS states have fallen, - with only Spain surviving, and their election in five days seems set to remove Mr. Zapatero too, a clean sweep.
However, the fact is that the Merkel-Sarkozy (the so-called "Merkozy") axis, which has presumed to fill the "leadership vacuum" in the EU is just as impotent as those they have outlived (or in the case of Greece and Italy, actually brought down). In due turn, it seems increasingly likely that Sarkozy will lose to Hollande in May 2012, leaving Merkel to survive as a lonely and haunted figure, until her own political demise not later September 2013, and quite possibly before then.
The conclusion is that we can already see that the policy direction undertaken by the Merkozy axis will fail.
The problem is that this will now require a fundamental reassessment of the structure and workings of the European Union. After the failures of the constitution and the Lisbon treaty, the fact is that it will be impossible to conclude a satisfactory treaty acceptable to all 27 member states. Even if the "peripheral" states, i.e. those not in the Eurozone, are prepared to accept a two speed Europe, with a closer core and a loser periphery, it is hard to see how that could be delivered politically within the Eurozone. The crisis, after all, is not between Germany and Britain or Sweden, both non members of the Euro, but rather Germany and the PIIGS- which are all inside the zone.
So, in fact David Cameron, by encouraging a closer core Europe, provided the UK is allowed to stay out, is actually arguing for something that is incredibly difficult, if not actually impossible, to deliver. Meanwhile the Liberal Democrats are still speaking up for a European model that now obviously need radical reform as though it is still a blue-print for the future.
If it is a map for the future, then we appear to be lost.
The fact is that we should now be revisiting the ideas of Schumacher and Kohr, particularly with regard to sustainability and appropriate technology and applying both to the political mess that we now find ourselves in. Liberal Democrats have long supported the idea that the powers of government should be given to those most closely affected, what is called in the jargon, "subsidiarity". The problem with being a European Federalist, is that despite the powers nominally granted to the European institutions, and despite the departure of national governments that oppose these, the fact is that these European institutions do not have democratic legitimacy, and are unlikely to acquire it in any acceptable time frame.
If the idea of Europe is going to have any political meaning in the future, we must consider not the overarching institutions, but the ideas of small is beautiful. To my mind it is the only way that the European Union can avoid being washed away entirely as the new political generation is forced to address the crisis in the light of the gridlock and failure of the polices of the Merkozy axis. There have been huge benefits in European co-operation, that seem in danger of being destroyed by the gigantism of the European Union as it is currently constructed.
The Liberal watchwords of Peace, Retrenchment and Reform are now critical. They are the only way we can ultimately tackle the economic crisis after the banking collapse, they are also the only way we can tackle the political crisis at the heart of Europe.