Germany

Ther was in his twenties during the reunification of West and East Germany between 1990 and 1991 and witnessed the development of the new German state away from social democratic and welfarist traditions. What he saw emerge instead was a consumerist society without any significant increase in ordinary people’s incomes across the East:

It was a bad sign that the shopping centers [in the East] were busy even in the morning, filled with people who could not buy anything because they had lost their jobs. The contrast between the colourful merchandise and the people who couldn’t afford any of it, between surplus and lack, was striking. These contradictions of postmodern consumer society are one of the long-term reasons for the rise of right-wing populists in Germany and elsewhere.

How the West Lost the Peace argues that reunification not only radically liberalized and privatized the East German economy, but it also helped undermine the economic policies of the West, which sought to balance regulated capitalism with welfare states, replacing them with neoliberalism.

The abandonment of socialist, social democratic, and social market policies in favor of a version of German neoliberalism made it possible for the new republic, once unified, to prosper as a high-tech exporter and service economy, Ther argues. However, these growth industries were regionally specific and tied to a short-lived European security settlement that allowed German governments to import cheap natural resources and labor from the former Eastern Bloc to lower manufacturing costs.

Now, in 2023, many German firms face bankruptcy as the extended supply chains built during the reunification era come under strain from conflict in Ukraine. Germany’s current economic impasse has led the Alternative für Deutschland (AfD), which Ther describes as “antiliberal,” to overtake the Social Democrats in recent polls, giving a far-right party second place among the electorate for the first time since the 1930s.

However, Ther points to older sources than the Russo-Ukrainian war for this German dysfunction. A series of botched privatizations led by the Treuhandanstalt — the agency set up by the German state to privatize the East’s formally state-run economy in the 1990s — is also blameworthy. This agency, Ther points out, declared itself no longer of service in 1994, having fully privatized the former communist state. However, these formerly state-run enterprises were not, in most instances, replaced with functioning privatized ones. They were often shuttered, depriving the region of goods and services that were previously essential to its functioning.

Western Germany had been somewhat resistant to full-throated neoliberal reform, under the chancellorships of Helmut Schmidt and Helmut Kohl in the 1970s and 1980s. The reintegration of the East into the West allowed for the universal introduction of the same set of “free market” policies that were being tried out across the former Eastern Bloc. Because the former German Democratic Republic was more heavily industrialized and less reliant on services, mass privatization hit harder, creating the political and economic fractures between the East and West we see today. Reunification meant that these reforms were not met with mass strikes but instead mass migration, leaving a rump of older, more conservative voters in the eastern provinces.

Italy

Much like in West Germany, the neoliberal policies that would ultimately undermine Italy’s stability were influenced by anxieties around eastern Europe and the former Soviet bloc, which served as a pretext for the erosion of European traditions of social and Christian democracy in the Mediterranean. What started as a set of economic doctrines and experiments in Anglo-American academia would make their way into the new Italian parties like Berlusconi’s Forza Italia, Francesco Rutelli’s Democrazia è Libertà, and Walter Veltroni’s Partito Democratico that competed for power in Rome during the post–Cold War period. The result of large-scale privatizations and the removal of social protections in Italy exacerbated the pre-existing inequalities between south and north, stagnating the economy and helping bring the postfascist Giorgia Meloni to power in 2022.

How the West Lost the Peace sees the modern trajectory of Italy as a portent of Europe’s decline as a whole. Italy is an example of what can happen economically and politically when the Overton Window becomes too narrow. It was, Ther rightly observes, the exclusion of the Left from power that created the ideological vacuum in which neoliberal ideas could take hold.

Ther recounts how the dirigisme of the state-capitalist parties in mid-twentieth-century Italy, namely the dominant Christian Democracy Party and moderate junior Italian Social Democratic Party, lost all legitimacy in 1992. This was because both parties supported incredibly high levels of corruption during their decades-long administrations and coalitions from the late 1940s to the early post–Cold War period. After this corruption came to light during the 1992 Tangentopoli scandal, which involved bribery for state contracts, the former Christian Democrat–led party system collapsed, and Italy was left with huge fiscal deficits.

Under the rule of the new neoliberal parties, both populist and technocratic, Italy pursued what Ther terms “situational neoliberalism” in response to the country’s economic stagnation and limited funds for budgets. To achieve budgetary expansion, the Italian government privatized what was a heavily state-run economy, often by converting companies into publicly traded stock corporations and privately held firms. During this period, despite having much lower average wages than Germany, production moved to eastern Europe and Asia, effectively leading to deindustrialization in Italy.

Ther argues that under this process of deindustrialization, the Italian left (or what remained of it) fatally conceded economic ground to Berlusconi and prompted a realignment of voting habits: “Berlusconi, by contrast, was an extravagant spender who catered especially to his constituencies in southern Italy. The Left therefore took on the role of liberals and conservatives in terms of their budget policy, a move which gained them the approval of experts and international finance organizations, but not their voter base.”

The result of this realignment was that the majority of working-class Italians that did vote, did so for the Right. The Italian economy — trapped between narrowly funneled financial patronage on the populist right and austerity on the technocratic center left — has undergone cycles of destabilizing boom and bust, clearing the ground for Meloni’s Fratelli d’Italia. For now, Meloni’s coalition government is aligned with Washington, NATO, and EU security priorities, but Italy continues to labor under the same economic conditions that have prompted widespread armed conflict to its east.

Eastern Europe

Unlike in western Europe, the institutions of communist states were completely destroyed, leaving an unconstrained vacuum. For Ther, there were few “embedded” institutions to guard against widespread chaos. This has resulted in pronounced uneven and combined development, both between former Eastern Bloc countries and within them. As How the West Lost the Peace notes:

Growth in all post-communist countries varied hugely from region to region. While the capital regions of Poland, the Czech Republic, Slovakia, and Hungary surpassed the average GDP of the EU soon after the union expanded (adjusted for purchasing power parity), the villages, small towns, and old industrial areas fell further behind. The poorest regions achieved a GDP just a fifth or sixth of that enjoyed by the front-runners in the same country. These regions are now the strongholds of PiS in Poland, Smer in Slovakia, and Fidesz in Hungary.

As Ther points out, the effects of the much-maligned “trickle down” in eastern and central Europe were even less than in America and the UK. Around one-fifth of the population in postcommunist Europe benefitted from the liberal reorganization of their economies and a full two-fifths lost wealth, according to the economist Branko Milanović.

It seems only natural, then, that the contradictions in the neoliberal project would start to erupt into violence and conflict where economic disruption was applied in the least constrained manner. How the West Lost the Peace makes the point that as the Cold War ended, the forces of capitalism and political reaction pulled eastern Europe in different directions: “while inner-European walls and borders disappeared after 1989, Europe as a whole also began to drift apart.”

Ther argues that the priorities of economic liberalization alongside the triumphalism of NATO and the European Community after the end of the Cold War led to several missed opportunities to integrate Russia, along with eastern Europe, into a broader set of pan-European alliances in the 1990s. The last years of the twentieth century, Ther concludes, were a missed opportunity to secure long-term peace east of the Oder River in the former communist states. “It is,” he wonders, “worth asking why the West was unable to more closely integrate Russia into its alliances and security systems after the country gained independence.” The problem was, Ther unconvincingly assets, in part that “France and Germany were too self-centered at the time”.

Instead, the shock therapy of neoliberalism, alongside different economic trajectories for western and eastern post-Soviet states, has led to a radically unstable and unaccountable set of rival power blocks centered around Russia, the Collective Security Treaty Organization, the EU, and NATO. Like in Germany and Italy, the instability of the 1990s economic transition to neoliberalism has led to combative right-populists gaining power in Russia, Belarus, Hungary, and Poland. In effect, the results of economic shock therapy and failed integration have lined up xenophobic capitalist strongmen, Putin, Lukashenko, Duda, and Orbán on opposite sides of global power blocs. Instead of democracy, the end of the Cold War has only brought more capitalist rivalry and potential conflict.

What Next?

The post–post–Cold War era will be defined by the alliances and conflicts constructed around economic self-interest and strategic priorities. Indeed, the end of the peace in Europe has not prompted the overcoming of capitalism or neoliberalism. Rather, we have entered a period of palliative care where both NATO and Russia funnel resources into creaky states destabilized and shorn of capacity by decades of asset stripping and outsourcing. To the extent that either Washington or Moscow has abandoned the neoliberalism of the 1990s, it is only to secure a monopoly of violence within their imagined “spheres of interest.” On the sidelines, former European powers like Germany and Italy are desperately reengineering their states for a new age of great-power competition. But as Ther points out: “the economic war and the war on the home fronts will be more difficult to win than military battles in the field.”

How the West Lost the Peace mourns the failure of liberal capitalism to properly abandon destabilizing neoliberalism and adopt stable statist policies in the 1990s. However, Ther refuses to locate this failure in the profit motives of capitalists, which took the disorganization of the European working class, as well as the defeat of socialism and communism, as an opportunity for a neoliberal reorganization of society. It was under these conditions that the disorder decried by liberals could flourish, and it will require a challenge to these conditions to produce the forces capable of putting an end to conflict.