At Large

The Euro’s Last Stand

So much for eliminating Germany's potential for dominating Western Europe.

By 11.21.11

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There is no question that the concept of a union of European states once held special political meaning for France. After World War II this theme, which had been mooted earlier after World War I by Jean Monnet, was accepted as the perfect device for ensuring Germany would no longer have the potential to rise up and devour the rest of Western Europe. The danger emanating from Soviet expansion was something for the United States to worry about. What French leaders -- particularly Gaullists -- saw in unification was a chance for France to dominate Western Europe politically and economically.

It was natural that any legitimate political union of European nations would require economic union, first through a common market and then through a single currency governed by some form of central banking system serving all member countries. The problem that is so clear today is that economic and even limited financial union through a single currency holds hostage any political union.

The idea that the power of Germany would be contained by the unification of Europe has proven false. All of Europe, and specifically France, waits in great expectation for the latest pronouncement to come from Berlin. Meanwhile Chancellor Angela Merkel carefully husbands her counsel so as not to step on her domestic political constraints. Driving this dynamic is the clearly declared unwillingness on the part of the German public to assume any greater financial obligation than it must to keep Europe's too numerous "sick men"  (Greece, Italy, Spain, Portugal, Ireland, and possibly eventually even France) from drowning in red ink.

The hope -- and it's hardly more than that -- is that a comprehensive new program can be put together by the International Monetary Fund (IMF) in concert with the European Central Bank. There is no lack of brain power, but there is a lack of available funds to do the job. No one in Europe wants to face it, but a large financial participation (some would say aid program) must come from outside the eurozone. This means China. There could be input from other so-called "emerging economies," but without Beijing's now considerable resources revitalization of the Eurozone is clearly doubtful.

The elephant in the room is the dream itself of a single currency. It appears that most of the intellectual orientation on countering the debacle in progress is based on saving the euro. When this is questioned, the answer eventually comes around to the perceived connection between the single currency and the European Union as an existing entity. The implication is that without a single currency, political unification of Europe would be nullified. This is a complete reinterpretation of the original justification for the EU. The euro does not exist to hold together the union of Europe; it's the other way around!

It is quite clear that Germany would not be adverse to a well-managed return to their D-mark. And certainly economic development for Germany does not depend on having the same monetary unit as Greece, Italy, Spain, Portugal or France. If cooperation on foreign policy and even regional economic policy could evolve as it did before the advent of the single currency, it surely could be accomplished again.

It was said that the inability of the separate national entities to operate effectively without subsidization by its neighbors would continue as long as there was no complete political unification and integration of life throughout Western Europe. If that is the case, the ambition is already lost. European identity is not even near overcoming the national identities. Reality dictates that Europe's leaders and the rest of this interdependent financial world accept the fact that the euro cannot work without the European Central Bank manufacturing money. Alternatively Europe must be thrown an international life line.

The American and Chinese economies, as well as major energy exporters such as Russia and the Middle Eastern oil producers, depend greatly on their sales to Europe. It will require painful financial cooperation principally by the U.S. and China, but that is the only path to a return to stability in Europe -- and globally. And this is after Europe, itself, fully commits to its own fiscal survival.

If this is not accomplished, and the euro is mortally assaulted, the European Union will become nothing more than a mechanism for border-free travel and an exercise in economic and concomitant political degradation. The rest of the world cannot afford an unrestrained flight from the euro and subsequent bank collapses from debt defaults that would have been caused by the fall of Europe's single currency.

The answer in the end has been so far unattainable. The members of the EU must agree on sharing the losses so far accrued. Only then can a heavily refinanced IMF come in with additional contributions from outside nations. Solving balance of payment problems has been the IMF's raison dtre. With increased financial strength it could be the lifeguard for the eurozone. But this only can come about after the eurozone participants have worked out their own program for recovery. And yes, Germany must lead the charge to plug the breaks in Europe's lines.

So much for eliminating Germany's potential for dominating Western Europe!

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.