Jacob Heilbrunn

The End of the Euro?

The news for Europe keeps getting worse. The Bank of England is issuing more money to avert a liquidity crisis in the United Kingdom. Growth was close to zero in the euro zone in the past quarter. Now comes an unexpected insult: Standard & Poor's, fresh from having threatened the members of the euro zone, including France and Germany, with a downgrade from AAA status, delivered a new blow today. It's now threatening the credit status of something else—the European rescue fund itself.  If the fund needs rescuing, then Europe cannot be rescued. Instead, it will plunge into a debt crisis and recession simultaneously, dragging down the American economy with it, not to mention President Obama's electoral fortunes. Perhaps Treasury Secretary Timothy Geithner, who keeps visiting Europe to plead with it to reform, should take up permanent residence in one of King Leopold's old castles in Brussels?

The fundamental problem, of course, is that there is no such thing as Europe. Oh, there has been an idea of Europe for eons—the Carolingian empire, the Ottonian empire and all that. But what exists today is a welter of countries subsisting uneasily under the mantle of European unity. The people who really believe in Europe belong to a cossetted, technocratic class of public servants who drive around in Mercedeses on government money and talk about the virtues of ever-increasing unification. In retrospect, however, it may have been German reunification that helped crack up the whole enterprise. To allay fears that a single Germany would be too big and powerful, Helmut Kohl, the heir of Konrad Adenauer, abandoned the mighty deutsche mark in favor of the euro. Germany would be a docile, tamed power. It wouldn't throw its weight around.

But, of course, it has, willy-nilly, begun to puff out its chest a little bit in recent years. Chancellor Gerhard Schroeder rejected participation in the Iraq War and won reelection by running on anti-American slogans. Now Angela Merkel, the woman from the East, is proposing structural changes to the European Union, including new mechanisms to enforce debt limits. But Europe doesn't seem to be much different than America in this respect: even if new enforcement measures are taken they can always be evaded. Remember "pay as you go"?

But there is one difference: Germany is now in a position to impose—or, if you are one of the countries under its lash, inflict—its rules of the game. Germany has a negligible budget deficit. Its citizens save. It can afford to cut taxes but doesn't. The trouble is: Can you really effect a cultural, not just an economic, shift almost overnight? Can Germany convert the rest of Europe into diligent little Teutons? A new Franco-German treaty negotiated in haste and intended to be ratified by mid-March is supposed to solve the problem. Germany is trying to change the rules before it helps its neighbors. But it may not have enough time. It's the equivalent of demanding that a hospital patient suffering from a heart attack immediately begin a new exercise regime before he is operated upon.

The phrase after reunification was that a European Germany, not a German Europe, would emerge. It's starting to look the other way around. A rebellion against German dominance should not be discounted, but it might come at the price of the euro and economic growth for a decade.