Europe's In Trouble Again
Europe has long been famed for seemingly high intractable unemployment rates and sluggish growth rates. Then it added a new feather in its cap with the debt crises assailing Greece, Spain, and Portugal. Protesters got to march on the streets and, once again, denounce das Kapital. Meanwhile, Americans are fretting that they're about to go down the same road, as the Republicans and Democrats haggle over cutting the budget.
Now Europe may be imposing a self-inflicted wound upon itself. The European Central Bank raised interest rates on Thursday. The move maintains the banks anti-inflation bona fides. But it may be a symbolic rather than a practical victory. Raising rates is likely to have several effects: it will ensure that Euro remains a hard currency; it will make it more difficult for Europeans to export goods; and, above all, it will impose a punishing blow upon Greece, Spain, and Portugal, which need to keep raising funds so that they don't go belly-up. In short, the move is likely to backfire. Inflation remains tepid. There is no reason to raise rates.
If Europe faces economic difficulties, it is also regressing from unification in practical ways. The Wall Street Journal notes that France is resurrecting its border with Italy. It's desperate to stop any North African migrants from entering France. The result is that France and Italy are at war again. According to the Journal,
The crackdown is sowing tensions between the two neighboring countries. "There's a hostile attitude coming from Paris," Italian Interior Minister Roberto Maroni told the Italian Senate on Thursday. French Interior Minister Claude Guéant lashed back, saying France "is completely within its rights to send these people back to Italy."
The upheaval in Northern Africa is unlikely to end. The prospect of a united Europe seems further away than ever. If the European Central Bank continues to raise interest rates, which suits Germany just fine, it will raise the prospect of further direct bailouts of the southern states—or of a formal two-tiered Europe, in which Germany and France form their own core. Would even Italy be able to make the cut? Or will Germany end up saying Auf Wiedersehen to everyone else?