Just a few weeks ago, it looked like Europe's financial crisis was over. Stability seemed to be returning. However, it turned out to be a hoax. A minor problem (at least in terms of scale) like Cyprus, combined with an almost unbelievable degree of incompetence among the "troika" (the European Union, the European Central Bank and the International Monetary Fund), was enough for a small crisis to take on huge proportions.
Although the markets remained calm, the Cyprus crisis fully exposed the political disaster caused by the Eurozone crisis: the European Union is crumbling at its core. The current crisis of Europeans' confidence in Europe is far more dangerous than renewed market jitters, as it cannot be overcome by another injection of liquidity from the ECB.
The old political order of Europe was based on competition, mistrust, rivalry and, ultimately, war between sovereign states. It collapsed on May 8, 1945, when it was replaced by a system based on mutual trust, solidarity, the rule of law and compromise. However, as the crisis undermines those foundations, trust turns to mistrust, solidarity gives way to old prejudices (and even new hatred between the poor South and the rich North), and dictation prevails over compromise. And Germany once again found itself at the center of the disintegration process.
This is because Germany, by far the EU's strongest economy, has reinforced a strategy to overcome the eurozone crisis that worked for Germany at the turn of the millennium, but under completely different internal and external economic conditions. For the affected southern states of Europe, the mix of austerity and structural reforms, supported by Germany, has proved fatal, as the decisive third and fourth components - debt reduction and growth - are missing.
It is only a matter of time when one of the European countries affected by the crisis will elect a political leadership that will not accept the dictates of austerity. Even now, when it comes to election time, national governments are more or less openly promising to protect their citizens from Europe.
An argument has been made that "rough love" is necessary in Southern Europe, because otherwise nothing would ever change. That love was really rough, and it produced a rapid decline in growth, massive unemployment (over 50 percent among the youth), and steady fiscal deterioration, due to rising debt servicing costs. Indeed, all eurozone members are now experiencing weak economic growth, if not recession.
What does Germany want? German Europe would never work, and the political class of that country lacks the courage and resolve to strive for a European Germany. Therefore, does Germany want to preserve the monetary union and thus save the EU, or will it allow vacillation and a lack of vision to accelerate the erosion of Europe's foundations?
In this crisis, absence of action favors action. The International Herald Tribune recently quoted Winston Churchill: “It is not enough to do our best; sometimes we need to do what is necessary." This is exactly what is needed in Europe and in the Eurozone.
It has long been clear what needs to be done. The price of the survival of the monetary union, and thus of the European project, is greater unity: banking union, fiscal union and political union. Those who oppose it out of fear of shared responsibility, rescue of the poor by the rich and loss of national sovereignty, will have to accept the renationalization of Europe - and thus stepping off the world stage. No alternative – and certainly not the status quo – will work.
In Europe, it has become a common opinion that the current crisis will either destroy the EU or lead to a political union, and that, without a solidary solution for the existing debt and partial distribution of the new debt, the euro cannot be saved. Such steps will make far-reaching surrenders of sovereignty inevitable. Is Germany – or France – willing to do so?
The real crisis of the EU and monetary union is not financial but political – or, more precisely, it is a crisis of leadership. The lack of vision, courage and willpower is present in all European capitals, but especially in Berlin (both in the government and in the opposition).
European national politicians routinely criticize the EU for its lack of democratic legitimacy, even though they bear responsibility for it. Or, have pro-Europeans become so despondent and disheartened that they would rather hand over the reins to anti-European populists and nationalists? That would be a disaster, because the crisis is now so deep that it would be solved by technocratic means.
Germany is preparing for national elections in which, like last year's presidential elections in France, the European crisis will play no, or only a minor, role. Both the government and the opposition believe that it is better to tell the people the truth about most vital issues only after the elections (and in measured doses).
Such an outcome would be a mockery of democracy. However, the situation could develop completely differently if the dynamics of the European crisis spoils the plans of German politicians. An unpleasant surprise cannot be ruled out; it is perhaps the greatest source of hope for Europe at the moment.
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