Resuscitating the Euro

Resuscitating the Euro

The eurozone is down, but not out. There may yet be hope for the euro's survival.

In fact, there are dissident economic voices in Germany—in the opposition parties, the trade unions and some universities—arguing that the EU needs to increase demand in the eurozone. Some talk of a “Marshall Plan” for Greece, to stimulate investment in infrastructure and solar power. In Brussels, the European Commission is working on schemes to speed up the disbursement of EU regional-aid funds to foster growth in the southern countries. And if EU governments implemented last year’s report on the single market drawn up by former commissioner Mario Monti, particularlyits proposals to liberalize services and the digital economy, Europe’s growth potential would rise. But at the moment little is being done to boost growth across Europe.

Another long-term problem is peoples’ growing hostility to the EU in general and to the euro in particular. Even if EU leaders can, belatedly, agree on the right policies to save the euro, public opinion may prevent them from carrying out those policies . In one country, a national parliament may veto a bailout; in another, a referendum on the new treaty could be lost. In surplus and deficit countries, many people oppose the bailouts. A lot of Germans—and Finns and Dutch and Slovaks—want to give no more help to southerners. Meanwhile, many Greeks oppose the bitter medicine that their country has been forced to swallow.

Populism, nationalism and euroskepticism are on the rise throughout the EU. In Athens, the government has tried—ineffectively—to explain to the Greeks why reform and spending cuts are necessary. But in Rome, very few leaders have told the Italians what a mess they are in and what needs to be done to save the country. In Berlin, Merkel and her ministers have done a poor job of educating the Germans on how their economy benefits from the euro. Most German politicians and business leaders know that if the euro broke up and a new Deutschmark soared in value, the big exporting companies would suffer. But many ordinary Germans have never heard that argument and think of the euro only as a burden.

Whether the euro endures depends on many factors, including the quality of European leadership. Nowhere is this more important than in Germany. Merkel will never be a visionary, but she is a practical problem solver. Churchill famously said that “the Americans can always be counted on to do the right thing...after they have exhausted all other possibilities.” Those who fear the consequences of Europe’s euro crisis are counting on the same being true of the Germans.

Charles Grant is director of the Centre for European Reform and author of numerous CER publications, including Is Europe Doomed to Fail as a Power? (2009) and Cameron’s Europe: Can the Conservatives Achieve their EU Objectives? (2009).