Contemplating the Future........New York Times
Contemplating the Future of the European Union
By LIZ ALDERMAN
Published: February 12, 2010
In 1870, the French novelist Victor Hugo had a vision. Planting an oak tree in his yard, he predicted that by the time it matured, a “United States of Europe” would have sprung up, strengthened by a common currency that would one day make the Continent a force to be reckoned with.
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Times Topic: European Union
One hundred and forty years later, the dream, like Hugo’s tree, is alive — if a little twisted.
Around Europe, 27 nations now fly the flag of the European Union next to their own. Sixteen have ditched the drachmas, marks and other bills that symbolized their sovereignty to embrace a single currency, the euro, lending new power to their economic and trade bloc.
All that is now being called into question, however, as European leaders struggle to prevent ruinous spending byGreece from spiraling into a wider crisis or even breaking up the euro union. How they handle this problem could either propel Europe to greater economic and political clout in the decades ahead, or downgrade it to a sideshow in a global economic theater directed by China and the United States.
For the moment, things don’t look comforting for the euro. As the troubles in Greece drove the currency ever lower against the dollar last week, Europe’s politicians did what everyone has by now come to expect: they talked about a bailout for Greece, then talked some more about the need to take “coordinated action.”
Yet details of a rescue plan were put off to a future date. No mention was made of how they would prevent Portugal, Spain or other deficit-saddled economies from falling like dominoes. And questions about who would pay for any future blowups were answered with silence.
“Now is the time when Europe needs to speak as one voice,” said Simon Tilford, chief economist at the Center for European Reform in London. “The crisis should lead to political unity, but it could just as easily lead to a divided Europe.”
What explains this inertia? Even as the euro was being conceived, Germany, Europe’s sturdiest economy, was fretting about Europe’s tendency to freeze during a crisis. The German chancellor at the time, Helmut Kohl, and Otmar Issing, a German who was then the chief economist for the European Central Bank, feared that unless they set strict rules on euro membership, the new currency union could stumble.
Germany and other wealthy northern European nations might one day even find themselves transferring taxpayer money to support their poorer kin in the south, among them Greece, Portugal, Spain and Italy. Britain, one of Europe’s wealthiest nations, saw the writing on the wall and never surrendered its pound.
The seeds of the current debacle were planted early. In 2003, four years after the euro’s birth, France touched off a firestorm by spending lavishly to tame a recession, declaring with a shrug that it had agreed only to “the principle of Europe.” Nations like Portugal, which made painful budget cuts to qualify for euro membership, asked why they should sacrifice if a heavyweight like France didn’t. Greece and Italy echoed similar views.
With more governments using the euro like a credit card, it was only a matter of time before investors questioned their ability repay debt. In January, when Greece tried to raise funds to pay down some of its 53 billion euro deficit, investors forced the government to pay an annual interest rate of more than 6 percent on bonds that will mature in five years.
Now governments in Spain, Portugal and Italy are also facing demands for higher rates, and fears that they might have to quit the euro club are mounting. On Friday, the French bank Société Générale became the latest to question whether a bailout of Greece simply postponed “the inevitable breakup of the euro zone.”
What this means for dreams of a more united Europe remains far from clear.
When the dust settles, Europe will probably still be a union with separate national parliaments and fiscal policies, says Thomas Mayer, the chief economist of Deutsche Bank. But he says he foresees economic policies that will be more tightly coordinated between countries, with a mechanism to resolve crises like the one brought on by Greece today. If that happens, the number of stable countries adopting the euro would probably grow, cementing Europe’s economic might as the decades pass.
But if the politicians fail, Hugo’s vision of a United States of Europe would become more clouded, and Europe’s economic weight in the world would decline.
Already, some of the small Baltic nations that had been clamoring to get into the euro club are having second thoughts. And if Britons were wary of adopting the euro before, they must surely be nursing a silent schadenfreude as they watch Germany and France scramble to clean up after Greece. Don’t expect them to change their minds any time soon.
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