Memo From Europe: Euro, Meant to Unite Europe, Seems to Be Dividing It

As European leaders scramble to present a united front for this weekend’s critical meeting in Brussels, anxiety in Europe is growing, and not just about the euro. The assumptions of 60 years suddenly seem hollow, and the road ahead is unclear, as if the GPS system has gone out of whack.

On the surface, the European Union is an enormous success. It has nearly 500 million citizens and a gross domestic product of more than $17 trillion, larger than that of the United States and more than three times China’s or Japan’s. It is America’s largest trading partner by far, and together the two economies account for roughly half the world’s gross domestic product and nearly a third of its trade.

But Europe is in economic and demographic decline as Asia is rising. The European Union’s share of global trade is steadily dropping, especially in exports. Its aging population is placing huge strains on generous social welfare and pension programs and pumping up sovereign debt in an extended period of flat growth.

Technologically, it is behind the United States, but its pay scales are too high to be an easily competitive exporter.

The current crisis over the euro has deep roots in the imbalances between north and south, rich and poor, export-led and service-driven economies, tied together by a currency but few rules, and those rarely enforced.

A fix will require fundamental changes in the functioning of the bloc, with more interference in the workings of sovereign states. There would need to be a fiscal union, with a treasury and a finance minister capable of intervening in national budgets, and more unified tax and pension policies. But it is far from clear that the European Union can gather itself to take these fateful steps away from nationalist identities to a truly European model.

“We are today confronted by the greatest challenge our union has known in its entire history,” said José Manuel Barroso, the head of the European Commission. “It is a financial, economic and social crisis. But also a crisis of confidence — in our leadership, in Europe itself, in our capacity to find solutions.”

There are many who believe that the European Union and its leaders have already been found wanting, and that the European project that brought democracy and peace to the Continent may begin to unravel.

“This crisis is threatening the benefits of 60 years of European integration,” said Nicolas Baverez, a French economist and historian. “All the principles on which the euro zone was built — no state default, no monetary transfers, no bailouts and strict limits on debt — all these principles are dead, and we have no rules to make this work.”

Worse, he said, political leaders underestimate the dangers. “This is not just another recession, but a real and fundamental crisis,” he said. “There is a tension in the political system and doubt about democratic institutions that we have not experienced since the fall of the Soviet Union.”

Built from the ruins of war and expanded generously in the euphoria after the Soviet collapse, the European Union heralded itself as a model, radiating “soft power.” But now the model looks tarnished and flawed.

Leaders seem diminished; local politics trump solidarity. There is a new nationalism degrading the collective responsibility and shared sovereignty that defines the European Union. Euro-skepticism runs from far-right parties that simultaneously detest immigrants, globalism and Brussels to the governing parties of Europe’s most successful countries.

A European Union of 15 nations seemed coherent and manageable; the Europe of 27, soon to be 28, is almost ungovernable, even by a professional bureaucracy with little connection to voters and whose decisions cause increasing resentment, summarized in the “democratic deficit” that the European Union suffers.

The historical ironies are considerable.

Germany, for example, divided and in ruins after the war it fought to dominate Europe, is reunited and dominating Europe now, but without arms and with deep reluctance.

Article source: http://www.nytimes.com/2011/10/20/world/europe/euro-meant-to-unite-europe-seems-to-be-dividing-it.html?partner=rss&emc=rss