“Things fall apart; the center cannot hold,” wrote the Irish poet William Butler Yeats of the dark time he envisioned in the aftermath of World War I. Today, the converse of this proposition overshadows our future: if Europe fails to respond to the euro-zone crisis in a way that reinforces its center, things will begin to fall apart—and well beyond the economic sphere.
While we are hardly yet at the brink of Yeats’s apocalypse, the financial crisis is rapidly weakening the hold of European institutions on countries on the EU periphery. By calling into question the sixty-year momentum of European unity, the crisis also is loosening a plank on which international system has rested for a half century. More broadly, repeated failure to contain the crisis tarnishes the allure of liberal democratic ideals just as alternative ideologies from outside the transatlantic realm are challenging their preeminence. As European leaders gather for this week’s EU summit, there is as much or more at stake for long-term global security as there is for short-term economic stability.
To begin restoring the promise of Europe and stemming adverse effects on security, leaders will need to rise above the central pathologies that have stymied progress on those conflicts that define the crisis: the tug-of-war over who should bear exposure to risk and losses, the juxtaposition of imperative fiscal and structural reforms with their wrenching social consequences, and the uneasy coexistence on the Continent of two divergent views on the role of the state in the economy.
As much as they may have relieved immediate anxieties, the Greek elections do not mark the beginning of the end of the crisis. Absent a formal, credible lender of last resort, one fundamental question will perpetuate the impasse: Who pays?
Electorates in Europe’s core countries, especially Germany, will insist on imposing most of the losses on what they see as a feckless periphery, whose unsustainable public spending and abysmal productivity generated the current hangover. But lacking the option of currency devaluation to increase competitiveness, the troubled southern economies face an indefinite period of economic and social strife. Meanwhile, the core's practice of serial brinksmanship—repeatedly denying bailouts until the last possible moment in order to extract maximum fiscal concessions and structural reforms—hardly helps the cause of unity.
In response, frustrated and fatigued by their neighbors’ intransigence, peripheral economies are seeking alternative sources of finance, often from powers that share neither Europe’s strategic interests nor its taste for democracy and free markets. Before requesting a bailout from Brussels on June 25, Cyprus had sought to borrow up to €5 billion bilaterally from the Russian Federation, adding to the €2.5 billion already secured from the Kremlin—significant sums for a country with a GDP of only €17 billion. The Kremlin-controlled gas exporter Gazprom is widely regarded as the most likely eventual buyer of Greece’s state gas companies. China, through its state-owned enterprises, has leased for thirty-five years the most valuable part of the port of Piraeus, where it plans to triple capacity, and is reportedly scouting other strategic assets, including the Greek state railway system. Indeed, across Europe, Chinese direct investment increased threefold in 2011 alone.
The core can dodge the establishment of a last-resort lender only at the expense of driving peripheral countries into the ledgers of other financiers.
Austerity Meets Demography
Meanwhile, disaffection with government extends throughout southern European societies. The first beneficiaries of this trend have been mainstream—and broadly pro-EU—opposition parties like Spain's People's Party and Greece's New Democracy. For now, the establishment is accorded the benefit of the doubt. But if austerity, economic stagnation and high unemployment continue through several more electoral cycles, voters may sense that conventional politics is incapable of solving their problems. Even today, populists of the Left and Right are gaining ground; as Aristedes Hatzis recently observed in the Financial Times, it is “difficult to find a notable dictator, even among the great butchers of the twentieth century, without a steady following in the Greek parliament.”
Extremists looking for scapegoats will lose no time in setting upon the communities of immigrants that have flowed into Europe over the past two decades, both legally and illegally—the latter now overwhelmingly through Greece. In the two countries at the center of the crisis, Greece and Spain, first-generation migrants, most from outside the EU, comprise well over 10 percent of the population. The fascist Golden Dawn party—which has eighteen seats in the new Greek parliament—has threatened raids to throw “immigrants and their children” out of hospital wards and kindergartens, attracting with such demagoguery the votes of an estimated 50 percent of all Greek police officers in this month’s parliamentary elections.