by Ken Feltman
We have met the enemy, and he is us.
– Pogo, the comic strip philosopher created by Walt Kelly
Under the best of circumstances, the strong have trouble lifting the weak. More often, the weak pull down the strong. When the forerunner of the European Union was created with the 1957 Treaty of Rome, Europe’s political leaders heralded a new spirit of cooperation that would bring the disparate countries into political and economic union that could close the gap of economic disparity among Europe’s many nations. Eventually, through cooperation on continent-wide problems, Europeans would adopt a single currency, followed by a coordinated monetary policy and – possibly, just possibly – a single foreign policy.
After centuries of rivalry and warfare, Europe would settle into maturity under a single flag. Although partly realized, the vision was never completely practical. Early on, Europe’s leaders ducked the key constitutional and economic decisions concerning joint economic policies.
A common currency can go only so far with no coordinated, underlying economic policy. Without a constitution or other governing document, a flag can be hoisted only so high. Eventually, as with so many things, the situation comes down to money. The problem, then and now, is that Europe’s leaders wanted the benefits of a common currency without the consolidation of financial authority. The Euro became an attempt to float a common currency on an inadequate institutional foundation. Most of the individual nations trade in the new currency but keep their national books in whatever budgetary jumble suits from time to time. Each nation can claim that its books balance, even when any casual observer can detect that what balances in Greece does not balance in Germany.
Searching for the Holy Grail
The founders set Europe on a modern quest for the Holy Grail. In ancient times the Grail was never found and brave knights were lost in the search. Today’s Europe has not found monetary union and citizens of other Eurozone nations will suffer for Greece’s foolishness. There is no other way, at least no other way that does not tear at the union itself.
As is so often the case, money is at the root of this family argument. A few weeks ago, we all heard the squabbling as Germany and other stronger nations struggled to decide whether to rescue Greece, their weakest and most profligate member. The politics of the May 9 German state election in North Rhine Westphalia made the decision harder for German Chancellor Angela Merkel. She dithered. President Nicolas Sarkozy of France pounded the table, insisting that if Germany did not back a bailout for Greece, the Eurozone would collapse – with France headed for the exit first. In the end, once again, Germany cast its lot with Europe. The Euro survives to be fought over another day. As expected, the election went badly for Merkel. Her government lost control of the upper house of parliament.
This brinksmanship was not about the Greek people. Who does not love Greece and the Greeks? Combine a beautiful place with wonderful people and you have a paradise – but a paradise that has courted fiscal disaster for generations. Now, at least temporarily, you have paradise lost for the Greeks and more taxes for the citizens of the better managed countries.
Merkel had to act despite the political risk. Greek default might have triggered panic and Portugal might have followed, perhaps with Spain and Ireland not far behind. Suddenly, Greece let the whole world see that by declining to create strong leadership in a central government, Europe merely pushed problems down the road – and Greece was the end of this road. Brussels has thousands of EU officials issuing hundreds of directives, but no central finance ministry. The European Central Bank was designed to be impotent. It could not issue debt on behalf of the EU member nations. It lacked authority to intervene with extreme and creative monetary policy as the U.S. Federal Reserve attempted during the 2008 financial crisis.
There were no good or easy solutions to the Greek crisis. One investment manager spoke for many when he advocated letting Greece go belly up: “Investors had always regarded the Euro as a de jure German mark; it is dawning on the world that it is becoming, de facto, a Greek drachma.” Most influential investors pushed for short-term solutions – in essence, to buy time to unload their investments – and they were willing to mortgage future generations with a crippling debt burden. But the burden is already beginning to hobble the present generation.
Some analysts worried that the more mobile Greeks would abandon their homeland for other parts of Europe, leaving behind those incapable of functioning in a competitive economy. Vultures would gather to pick at the bones. The EU would have a third world country filled with dependent people on its southern fringe. Those gloomy analysts may overstate the situation. But they focus attention on the fact that when countries join the Eurozone, they lose their ability to devalue or manipulate their currency to stave off disaster. A one-size-fits-all Euro does not accommodate every country, every budget and every political and economic situation.
Politicians and academics have speculated for years that European unification could be undone by East-West tension, especially between the old Soviet Union and the United States. One reason the Eastern Europeans were brought into the EU so quickly was to put that fear to rest. The concern might have been better directed from East-West to Europe’s North-South fault line. The financially disciplined nations of northern Europe, led by Germany, resent the loose financial ways of the southerners, who have treated the Euro like a credit card with a bloated balance that never needs to be paid.
European politicians had warnings: Denmark, the Netherlands, the United Kingdom and Sweden, among other countries, demonstrated concern. France, the nation that championed the dream of one Europe, barely ratified the Maastricht Treaty that established the common currency. Then, five years ago, French voters rejected the European constitution that was shepherded into existence by their former president, Valery Giscard d’Estaing.
The warnings were ignored and now Europe and the rest of the world must sort out the mess. Perhaps there will be an orderly – albeit costly – sorting out under Germany’s leadership. Europe has accomplished much. Ancient enemies have been reconciled. Communism has been conquered and Europe has experienced unimagined prosperity in the last half century. Now, Europe must try to form a more cohesive union, binding countries of very different cultures, ethnicity, traditions, attitudes and old antagonisms. From such disparity they will try to create a real union, encompassing financial controls. If they succeed, Europe will take its place as a powerhouse among nations and regions.
If not, another Greece awaits, but perhaps not in Europe. All over the world, we are all Greeks now.