Crisis in the EU

There are very real problems with the European project, but the eurozone isn’t going anywhere.

 Europe’s obituary is being penned by the popular press once again. An Economist headline on the future of Europe proclaims that the Continent is “Staring Into the Abyss.” The Week has “Europe on the Brink.” Investment guru John Mauldin, too. The proximate cause of all this, naturally, is the crisis of confidence in the euro but there is also considerable consternation about divisions within the EU, particularly the increasingly sharp positions taken by Germany and France.

While these essays and others like them point to very real problems with the European project in general and the eurozone in particular, they tend to make at least one of three mistakes: treating the EU as if it were a nation-state, regarding anything less than utopia as a failure, and projecting short-term trends long into the future.

Too many observers treat the EU as if it were in fact the “United States of Europe.” In reality, however, it is a conglomeration of twenty-seven states, each with its own domestic-political considerations and national-interest calculations, that attempt to work together. As the EU's website puts it, “the member states delegate some of their decision-making powers to shared institutions they have created, so that decisions on specific matters of joint interest can be made democratically at [the] European level.”

It's hardly shocking, then, that there is enormous tension during times of great crisis.

The Economist complains that “the debate about how to save Europe’s single currency from disintegration is stuck. It is stuck because the eurozone’s dominant powers, France and Germany, agree on the need for greater harmonization within the eurozone, but disagree about what to harmonize.”

But, surely, one could make a similar argument about divisions within the United States over dealing with the economy? Not only do Democrats and Republicans have very different ideas about how to handle the situation but so do House and Senate Democrats. The Senate has been tied up in knots for weeks over something as simple as extending unemployment benefits and we're only just now coming to something of an accord – and a very watered-down one at that – on financial regulatory reform.

Plus, we are an actual country, rather than a confusing array of overlapping treaty commitments—and we've been at it roughly two centuries longer.

But too many critics conflate setbacks with failure.

The Week contends:

The crisis has vindicated critics who have always insisted that roping 16 states together into one monetary system, but leaving their fiscal policies uncoordinated, was a recipe for instability” and fears a scenario “whereby nations are allowed either to default within the euro zone or to leave—essentially the end of the euro as we know it.

We're likely past that worry for now. But what if it were to come to pass? It would be a major setback, of course. But Europe managed to get by without a common currency as recently as nine years ago. And eleven of the twenty-seven EU member states, including the UK (the world's sixth largest economy), manage to participate as fully functioning members of Europe despite not having adopted the currency. There's simply no reason to think Europe would fall apart if Greece reverted to the drachma or Portugal to the escudo.

Much the same is true about political integration. It would be much better for both Europeans and Americans if “Europe” were to quickly emerge as a single actor on the world stage. Having to deal with twenty-seven national capitals plus three major EU institutions on everything from international security to trade is inefficient and exhausting.

Yet we are closer to that reality than we have ever been and the fact that we're still not all that close is simply a sign of how far Europe has to go.

Ultimately, either the Germans will prevail and persuade their eurozone comrades to adopt austerity, the French will persuade the Germans to be more free with their purse, or some other alternative will be chosen because circumstances force choices to be made. Maybe Greece will still be part of the eurozone, maybe it won't. Maybe—although I very much doubt it—Germany will decide that going back to the deutsche mark makes the most sense and take its lumps.

Pages