Fair. Balanced. American.

Tuesday, April 13, 2010

What is the future of the European Union?

Right now, it's not at all clear. Certainly there is little political will in Germany to rescue its economically ailing (or, as they would likely say, "profligate") sister nations. And without Germany's economic might at the engine, it's hard to see a solution not only for the PIIGieS but further east.
“There has been a tectonic shift in the way Germany acts in Europe,” said Ulrike Guérot, a senior research fellow with the European Council on Foreign Relations. Germans, she says, are “talking of behaving ‘normally’ now, like the others, and that means nationally.”

The European Union is facing a serious crisis over financing and its currency, the euro. But France and Germany also have important disagreements on policy toward Russia, China and Iran, making a coherent European foreign policy increasingly difficult to discern on an array of critical issues.

The French and the Germans, with different domestic constituencies and different attitudes toward economic policy, have a different view of how Europe and the euro zone, the 16 nations that have adopted the euro as their currency, should be managed. Germany, long the financier of the European Union, has made it clear that it will no longer pay for the mistakes and frauds of others.

France has put a much stronger emphasis on European unity and pride, trying to avoid involving multilateral institutions like the International Monetary Fund in the future of the euro, a prominent symbol of Europe’s challenge to the supremacy of the United States.

“Germany is no longer, as a matter of course or of principle, the motor, heart and savior of Europe,” said Constanze Stelzenmüller, a senior fellow of the German Marshall Fund in Berlin. “This isn’t the Europe we signed up for. It’s much larger, much poorer, and we have to take care of our own.”

Germany always acted in its interests, Ms. Guérot said, but those were perceived as sublimated within the European Union and NATO, the two postwar multilateral institutions that both protected the new democratic Germany and kept its ambitions in check. Now Germany is turning more obviously to Russia for energy and commercial interests, she said, making its European and American partners uneasy.

“We sublimated hegemony,” said Ms. Guérot, a German who is working on a paper called “Germany Unbound.” “But we’re dropping the sublimation now.” She laughed, then said: “Of course, this doesn’t sound nice to others.”
This kind of thinking does not come at a good time for Greece. Of course, then, a good chunk of the transformation comes because of Greece!
The International Monetary Fund is back at the peak of its power and relevance. But with Greece it has taken on a novel challenge: helping to repair a sovereign government’s finances with neither a default nor a currency devaluation. No bailout in modern history has managed such a feat.[...]

An I.M.F. package may help euro zone leaders plug the gap for a while. But if history is any guide, Greece still remains at risk of default or a humiliating exit from the euro.
No answers here. Nor do I have any for the followup: if Greece goes back to the drachma, how many of the fellow PIIGS will be forced to follow?

But one thing seems pretty clear: German politicians have decided their people would rather go back to the mark than bail out more profligates. And that can't bode well for the future of European political or monetary union.

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