As Greece’s financial crisis rumbles onwards, it has become commonplace to argue that the roots of the problem stretch all the way back to the design of Europe’s single currency. Actually, it is worse than that. The Greek crisis is about the very basis on which European unity has been built for the last 60 years. It threatens not just the euro but the entire edifice of the European Union.
The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel.
The EU has always proceeded by creating economic “facts on the ground”, which were intended to trigger political effects. Ever since the 1950s this has worked admirably, as a modest coal and steel community turned into a common market and finally into a Union of 27 nations, with its own parliament, supreme court and foreign policy.
Jacques Delors, the European Commission president who presided over the creation of a single market in the 1980s, said frankly: “We’re not here just to make a single market – that doesn’t interest me – but to make a political union.” The creation of the single market involved a huge expansion of European law and therefore deep erosions of national sovereignty.
The same political thinking lay behind the design of the single European currency in the 1990s. As Tommaso Padoa-Schioppa, a former member of the board of the European Central Bank, recently wrote in these pages: “The founding fathers wanted the euro primarily as a step towards political union.”
This drive for political union was intensified by the end of the cold war. France feared that a reunited Germany might once again dominate Europe. The French answer was to bind Germany into the European construction through the creation of a single currency. The German government willingly accepted this in return for the promise of a major advance towards political union in Europe, which was a longstanding national goal. (As for the German people, they were never consulted directly – an oversight that may come back to haunt the euro now.)
Gerhard Schröder, the German chancellor at the time that euro notes first emerged from Europe’s cash machines, believed that monetary union required “decisive advances towards political union”. Some, like Romano Prodi, Mr Delors’ successor as Commission president, even looked forward to an eventual crisis in the eurozone as the event that would trigger these “decisive advances”.
Now the crisis has happened – and it clearly invites the big political steps that the founding fathers anticipated. A logical political response to Greek insolvency – and the threat of similar crises in Spain, Portugal and eventually Italy – might be to create common European taxes and a mechanism for big fiscal transfers between EU states. These are features that help smooth a currency union in the US, but that do not yet exist in Europe.
But there is no sign of any such move. Europe is stuck. So what has gone wrong? The problem is that the “economics first, politics later” method is almost Marxist in its assumption that economics will inevitably dictate a particular political response. But democratic politics involves choice.
The traditional EU method could only work when the political changes prompted by earlier economic decisions did not seem deeply controversial or unfair to ordinary voters. But the kind of political integration required by the euro affects ordinary citizens at a very basic level – since it involves big choices about taxation and spending.
As a result, it exposes a truth that ardent pro-Europeans are very reluctant to acknowledge. Most citizens of the EU still feel far more attached to their own nation than to the Union. “Europeans” are much less willing to bail each other out than they are to bail out their own fellow countrymen. West Germany spent billions to turn around East Germany. But there is little sign that the Germans are willing to spend further billions to turn around Greece – with the spectre of similar crises to come in Spain and Italy. The Germans may feel very “European” in principle. But when they are asked to start writing large cheques to support a bankrupt Greek state, they start to feel strangely German again.
As for the Greeks, they too have counted among the most ardently pro-European people in the Union. But the price of any EU bail-out of Greece is likely to be savage austerity measures, overseen by officials sent in from Brussels. That is likely to feel more like colonisation than a voluntary “political union”.
So what happens now? It is possible that Greece may yet muddle through this crisis. But, in a world of rapidly rising sovereign debt, the next euro-crisis might only be months away. At that point, the members of the European single currency will once again be asked how much they are willing to do (and to pay) to help each other out. If the answer is still, “not very much”, the euro-area might begin to shed some of its weaker members.
But the consequences could go well beyond the single currency. The EU would have a crisis of confidence and the likely result would be that other powers it has acquired, on everything from immigration to social policy, would come into question. There is more than money at stake in the Greek crisis.