Ten days to save the euro

1st December 2011

Much of the leading political thought on the Eurozone is that it will eventually hit a brick wall:  In this piece Kai A Konrad Director, Max Planck Institute for Tax Law and Public Finance and Holger Zschäpitz Senior Business Editor, Die Welt conclude: " Although such a transfer union could be the logical endpoint of the path which European policymakers are currently pursuing, we consider a transfer union as unlikely. A more likely outcome is a breakdown of the Eurozone prior to reaching this endpoint. One possible reason for this breakdown is a rise in political tensions among member countries. A second, more likely reason is the bond market's possible loss of confidence in the sustainability of the Eurozone as whole."

But if politicians hit on the elusive solution to save the Eurozone, can it achieve what they had originally hoped? The Eurozone was a political construct, designed to pull nations together. Its current crisis may have done exactly the opposite. Has too much about the true balance of power been exposed by its recent problems?

 

German dominance

Certainly there is plenty of fear around about the political dominance of Germany: "When Horst Reichenbach arrived in Athens recently to head a new European Union task force to help the country deal with its debt, the Greek media instantly dubbed him "Third Reichenbach. Cartoons appeared of him in Nazi uniform. A Greek tabloid showed a photo of his office with the headline: "The new Gestapo headquarters."

"The Greeks are not alone in harboring suspicions toward Germany…The Daily Mail went so far as to accuse the Germans of attempting to use the euro crisis to "conquer Europe" and establish a "Fourth Reich." Meanwhile in Poland, Germany's supposed imperial ambitions became an issue in the recent elections."

But for those on the outside, it is still a party to which they want to be invited. Writing in the Guardian, Radoslaw Sikorski, Poland's minister of foreign affairs, says: "for Poland, European integration is not a crisis. It's an inspiration. 

He adds: "Twenty-two years ago, when communism ended, Poland's GDP shrank by 12%. Inflation ran out of control. Key export markets vanished. We had to build a modern democracy and a thriving market economy from scratch, while disentangling ourselves from the Warsaw pact. With huge efforts – and generous help from our European partners – we have succeeded. Poland's economy is growing at more than 4% a year. We are now the sixth largest economy in Europe, and one of the top 20 economies in the world. It is no surprise that Eurobarometer finds Poles expressing strong confidence in the EU. All our success would not have been possible without the collective investment in institutional stability and solidarity that the EU has delivered."

He goes on to say that he sees the Euro as ‘a vital national interest'. 

If you want to know about the future, ask a futurist. Patrick Dixon invites people to ask the question: "Try to imagine what historians will write about Europe in the year 2100 about the Future of the European Union."

 

The future of the EU

"The most likely scenario for the future of the European Union over the next decade and a half will be slow but steady progress towards integration, held back by the rich diversity of cultures and economic crises. A Greater Europe cannot be built without strong EU governance and visionary leadership, yet these are the two issues which are notably missing at present."

He believes that the greatest challenge will be tribalism: "Passions of large numbers of people within the EU can be easily inflamed by insensitive decrees from Brussels, or by "unfair" treatment by one country of another. Disputes over budget deficits, overspending, beef, lamb, asylum seekers, chocolate, Iraq and so on are not just superficial. They often hide very long, historical issues and profound resentments. Finding a way through will mean finding a common EU voice, a clear moral lead from a commanding EU figurehead who will bring confidence and clarity."

So Eurozone credibility can re-emerge but requires visionary leadership and is likely to see plenty of wrangling on the way. The vision of a harmonious melding of nations is a long way off. Ultimately, the balance is finely calibrated – nations will tolerate the dominance of Germany or France if they believe it is in their long-term interests to do so. Smaller countries will still make Eurozone entry a goal if they see growth as a result.

 

More from Mindful Money:

The aims and failures of the eurozone

Will Britain adopt the Euro?

What are the real
benefits of the European Union?

Creativity and financial crisis: Will this provide the answers?

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