With Europe on the brink of a disaster, the euro must be reconstituted as an entity based on economic reality, not ideological folly.
Yet again, Europe stands on the brink of abject disaster, apparently unable to resolve its differences. A monetary union that was meant to bring former enemies together, binding them to each other via irreversible economic integration, is succeeding only in tearing them apart. It is a crisis that this newspaper has consistently warned of since the single currency’s creation; it gives no pleasure to see our predictions come true.
With a meltdown in the sovereign debt markets fast metastasising into an all-embracing economic and political calamity, the Continent’s position has rarely seemed quite so imperilled since the days of the Second World War. Most worrying is that the Franco-German partnership which lies at the heart of the European project is fracturing as never before, with deep divisions over almost every aspect of the grand rescue plan.
It has already been conceded that this weekend’s meeting of EU leaders in Brussels – billed as the summit to end all summits – will be unable to agree anything of importance. Few have any confidence that a separate meeting on Wednesday will do much better. Whatever is agreed is almost guaranteed to fall short of expectations. Solutions that might have worked if enacted at an earlier stage are being rendered progressively obsolete by fast-deteriorating economic conditions and debt dynamics. Even Germany now seems to be slipping back into recession.
No longer is it possible to rely on the post-war assumption that, while Europe’s leaders may quarrel and disagree, they will always – in extremis – find a way through. Continental solidarity is being tested to its very limits, and the differences could be intractable.
The detail of the disputes over bank bail-outs and the scale of the European rescue fund is tortuous and convoluted. But the underlying problem is simple enough. Europe’s political elites know that for the euro to survive in its present form, it must move – with speed – towards full fiscal and political integration. Yet national leaders, and the voters they answer to, are as yet unwilling to accept the loss of sovereignty, and indeed the shared liabilities, that such a revolution demands.
Germany, for example, has yet to accept that it must take on a share of the responsibility for the peripheral nations’ debts; it must also enable them to regain competitiveness by engaging in unprecedented economic stimulus in Germany itself, thereby surrendering some of its own competitiveness and accepting higher inflation. Brought up on the strict monetary disciplines of the Bundesbank, most Germans find such potentially reckless policies anathema.
By the same token, France is struggling to deliver the structural, pensions and labour market reform that would put it on a par with Germany. Politically, the French and many others find it virtually impossible to accept the loss of fiscal sovereignty that the Germans would demand in return for bailing out their neighbours. Predicting how these standoffs might play out remains close to impossible. The only guarantee is that, whatever Nicolas Sarkozy and Angela Merkel manage to cobble together next Wednesday, it is most unlikely to solve the underlying problem.
In front of our eyes, one of the biggest financial and economic storms of the modern age is brewing. It may need to break with full force before workable solutions are contemplated. That could involve cutting Greece and others loose, and establishing a more tightly knit, fiscally solvent eurozone. Or it could mean splitting it in two, with France allying itself with the Mediterranean south so as to limit the scale of the devaluation, its inflationary consequences for the south, and the loss to the creditor nations of the north. To many, this would seem like the end of the European dream. But that dream was always doomed by the imbalances that the single currency enshrined. The question now is how best to minimise the damage, so that the single currency does not take the world economy down with it – and reconstitute the euro as an entity based on economic reality, not ideological folly.
Yet again, Europe stands on the brink of abject disaster, apparently unable to resolve its differences. A monetary union that was meant to bring former enemies together, binding them to each other via irreversible economic integration, is succeeding only in tearing them apart. It is a crisis that this newspaper has consistently warned of since the single currency’s creation; it gives no pleasure to see our predictions come true.
With a meltdown in the sovereign debt markets fast metastasising into an all-embracing economic and political calamity, the Continent’s position has rarely seemed quite so imperilled since the days of the Second World War. Most worrying is that the Franco-German partnership which lies at the heart of the European project is fracturing as never before, with deep divisions over almost every aspect of the grand rescue plan.
It has already been conceded that this weekend’s meeting of EU leaders in Brussels – billed as the summit to end all summits – will be unable to agree anything of importance. Few have any confidence that a separate meeting on Wednesday will do much better. Whatever is agreed is almost guaranteed to fall short of expectations. Solutions that might have worked if enacted at an earlier stage are being rendered progressively obsolete by fast-deteriorating economic conditions and debt dynamics. Even Germany now seems to be slipping back into recession.
No longer is it possible to rely on the post-war assumption that, while Europe’s leaders may quarrel and disagree, they will always – in extremis – find a way through. Continental solidarity is being tested to its very limits, and the differences could be intractable.
The detail of the disputes over bank bail-outs and the scale of the European rescue fund is tortuous and convoluted. But the underlying problem is simple enough. Europe’s political elites know that for the euro to survive in its present form, it must move – with speed – towards full fiscal and political integration. Yet national leaders, and the voters they answer to, are as yet unwilling to accept the loss of sovereignty, and indeed the shared liabilities, that such a revolution demands.
Germany, for example, has yet to accept that it must take on a share of the responsibility for the peripheral nations’ debts; it must also enable them to regain competitiveness by engaging in unprecedented economic stimulus in Germany itself, thereby surrendering some of its own competitiveness and accepting higher inflation. Brought up on the strict monetary disciplines of the Bundesbank, most Germans find such potentially reckless policies anathema.
By the same token, France is struggling to deliver the structural, pensions and labour market reform that would put it on a par with Germany. Politically, the French and many others find it virtually impossible to accept the loss of fiscal sovereignty that the Germans would demand in return for bailing out their neighbours. Predicting how these standoffs might play out remains close to impossible. The only guarantee is that, whatever Nicolas Sarkozy and Angela Merkel manage to cobble together next Wednesday, it is most unlikely to solve the underlying problem.
In front of our eyes, one of the biggest financial and economic storms of the modern age is brewing. It may need to break with full force before workable solutions are contemplated. That could involve cutting Greece and others loose, and establishing a more tightly knit, fiscally solvent eurozone. Or it could mean splitting it in two, with France allying itself with the Mediterranean south so as to limit the scale of the devaluation, its inflationary consequences for the south, and the loss to the creditor nations of the north. To many, this would seem like the end of the European dream. But that dream was always doomed by the imbalances that the single currency enshrined. The question now is how best to minimise the damage, so that the single currency does not take the world economy down with it – and reconstitute the euro as an entity based on economic reality, not ideological folly.
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