The preservation of the Eurozone is fast becoming the greatest source of tension between European citizens since the Second World War. To preserve the unity that guaranteed European peace for the past half-century, it may soon be necessary to abandon the doomed attempt at monetary integration in its current form.
At a press conference that European Union officials held earlier this year just after the union received the Nobel Peace Prize, a journalist with a sense of humour asked if Brussels also expected to win the Nobel Prize for Economics. The journalist might have been joking, but he touched on a key point which has been illustrated again this week as a wave of demonstrations, strikes and riots roiled the continent. For it is the failure of the European Union’s economic policy which is now the greatest threat to Europe’s peace.
Since the Second World War, the two greatest guarantors of peace in Europe have been NATO and the growing integration of Western Europe’s economies. What we now know as the EU started life in 1950 as the European Coal and Steel Community, an ambitious project to create a single market in coal and steel.
The point of the ECSC was to make France and Germany so dependent on each other for these vital resources of war that it would be inconceivable for them to fight one another again. A country cannot fight a modern war against its main supplier of steel. Gradually, this principle was extended to other sectors of the economy across Europe as well.
This not only helped to drive Europe’s post-war economic boom, but also helped to solidify Europe’s peace. Economic competition within the framework of European institutions could sometimes fuel resentment, but it also provided a common set of rules within which conflicts could be resolved peacefully. It also made all of Europe’s economies so dependent on one another that war became inconceivable.
When the Eurozone was formed, the principle of integration expanded to include the financial sector as well. Even though banks within the Eurozone were guaranteed only by their national sovereign, and that sovereign itself was responsible for its own debt, the financial myths that a euro was as safe in a Greek bank as it was in a German bank, and that it was just as safe to lend to either of these nations, took hold.
The debt crisis has decisively shattered this myth, and in so doing has dealt a huge blow to the principle of deepening economic integration across Europe. Financial integration has collapsed as banks in safe countries back away from the periphery, and banks in peripheral countries find it impossible to fund themselves on the open market. As the easy money that flowed before the financial crisis has dried up, under-capitalised banks have to rely on their national governments to bail them out. When those governments themselves become unable to fund themselves, they must submit to humiliating bail-out agreements.
On the other hand, the continued existence of the Eurozone has also required enormous sacrifices from Irish, Greek, Spanish and Portuguese citizens. While German taxpayers view themselves as stoically handing over hundreds of millions of euros to beach-loving Greeks, citizens of the peripheral nations are chafing at the savage cuts in spending and social services that are being imposed in return. Posters on the streets of Athens and Lisbon in recent months depicting Angela Merkel as a Nazi catch the flavour of their complaints.
The architects of the Eurozone overreached themselves. By trying to take economic integration in Europe too far, they created an economic situation which is now driving Europeans apart. And the remedial measures now being applied by European leaders could well make things worse.
Preserving the Eurozone requires large transfers of wealth from some countries to others, and will probably require them for a long time to come. Even proposals such as the banking union which European leaders are fleshing out agonisingly slowly, whatever their other details, involve at their heart the creation of a mechanism that will allow banks in the weaker countries to be rescued by the taxpayers of the rich countries. This at least breaks the destructive cycle of bust banks forcing bust governments even further into penury, but by institutionalising wealth transfers it risks sparking widespread protest when taxpayers cotton on. Whether voters in the rich countries will allow this situation to persist indefinitely is far from clear, meaning the whole edifice is only ever one election away from collapsing.
By creating an economic situation that causes so much resentment, the preservation of the Eurozone is fast becoming the greatest source of tension between European citizens since the Second World War. Not just anti-Eurozone sentiment but anti-European sentiment is on the rise across the continent, and it could yet lead to Britain or other countries leaving the union altogether. To preserve what we can of the economic and political unity that guaranteed European peace for the past half-century, it may soon be necessary to abandon this doomed attempt at monetary integration in its current form altogether.
Photo Credit: EuroCrisisExplained.co.uk