The crisis facing Europe today is starker and deeper than any it has encountered before. At stake is not only the future of the euro currency but, in a larger sense, the integrity of the whole European Union exercise, one of the greatest achievements of the post-World War II era. Greece is the weakest link in the chain — there are other vulnerable southern European countries — but its inconclusive election necessitating a fresh one portends the nightmare of its exit from the euro currency.
Both the European Union (EU) and the euro currency were game-changers in the 20th century after the horrors and devastation of two world wars. Not only did the EU bury the Franco-German enmity but also brought about an era of unparalleled peace and prosperity. Life for the ordinary European, later to be joined by their eastern cousins after the end of the Soviet Union, had never been better. Figuratively, borders vanished and among the young there was the sprouting of a genuine European identity.
This idyllic state began to unravel first with the recession of 2008 and later as the more vulnerable member countries’ debt burden began to zoom. The fly in the ointment was that though there were strict rules for those belonging to the common euro currency, there were no comparable mechanisms for fusing national fiscal policies except through penalties, often politically impossible to impose.
It is a truism to say that Greece should never have been taken into the euro arrangement because its accounting figures were dubious and it was plainly not ready for it. Once in the charmed euro circle, it loosened the country’s purse strings and spent freely. But the lengthening shadows of recession were casting their pall for some time, and ultimately the country was held to a cascading set of austerity measures that caused a political earthquake reducing the vote share of the two main traditional ruling parties from 80 per cent to 30 per cent and pitch-forking a far Left party to second place.
The recession and the austerity measures it sprouted have already taken the scalp of Nicolas Sarkozy, the French President; the Socialist François Hollande winning the presidency. The Franco-German combine is the acknowledged engine of the European Union. Together with Chancellor Angela Merkel, Mr Sarkozy was the votary of the creed of austerity; Mr Hollande singing the virtues of growth in his successful election campaign. Germany is, of course, the richest European country, Ms Merkel being the high priestess of austerity.
Inevitably, the focus of the G8 Summit of the industrialised countries at Camp David last weekend was on persuading Ms Merkel to bend her austerity credo. How far she will go in combining fiscal discipline with growth remains to be seen, but the final communiqué was vague enough to be construed in various ways. It was not lost upon anyone that the unravelling of the euro, and possibly of the European Union, would have world-wide consequences, including in depressing the fragile recovery of the American economy and hence spoiling the chances of US President Barack Obama’s re-election later this year.
The economic crises facing Europe have brought in their wake some ugly repercussions. In his election campaign, Mr Sarkozy took an increasingly right wing anti-immigrant line seeking to woo voters of the far right and even railed against the common frontier policy of the Schengen zone. Ms Marine Le Pen’s far Right National Front won some 18 per cent of the vote for the first time ever. In Greece, the neo-Nazi Golden Dawn party won enough votes to enter the National Assembly for the first time. An anti-immigrant mood across Europe became the norm. And in most countries, both the far Right and the far Left gained.
While hoping for the best, European establishments are trying to wrestle with mechanisms that would mitigate the disaster of a possible Greek exit from the euro mechanism. Most Greeks are in favour of the euro, but they are passionately against the austerity agreements singed by the previous government, leading to unprecedented unemployment. Indeed, Mr Alexis Tripas of the far Left Syriza party, expected to win the most seats in the new election in less than six weeks, has made the repudiation of the austerity agreements his leitmotif. The main worry of European leaders of a possible Greek exit from the euro is the impact it would have on other vulnerable countries fighting their own battles such as Spain, Portugal, Ireland and Italy.
Chancellor Merkel is under international pressure to recognise the dangers ahead and hence provide even more German money to bail out its less thrifty neighbours. The main question is that even if she bends — she also has a domestic constituency to consider — will it be enough? One suggestion is fully to open the spigot of the European Central Bank to fund national banks and restore confidence. Other proposals are less drastic but would also involve considerable outlays.
No country in the world will escape the economic and political consequences of the meltdown of the euro, if a possible Greek exit from the euro comes to pass. It is, after all, the centrepiece of the idea of an integrated Europe. Although member countries of the European Union have had their own caveats — not all are members of the euro — and there has been the traditional divide between those wanting to deepen the Union and others to expand it — the European Economic Community, as it initially was, is a triumph of hope over despair. Having come thus far, it would be a universal tragedy were it to flounder.
Ms Merkel and Germany carry a heavy burden. If it seems unfair that such a burden should be placed on a country that has played by the rules and husbanded its resources wisely, it is equally true that the unravelling of the euro would also affect German prosperity, together with the well-being of the world. All eyes are therefore focused on Berlin even as Greece keeps its tryst with destiny in a new election on June 17.