The Euro Saved — or Not?
How Europe has sacrificed prosperity to “unity” — and how it can stop.


John O’Sullivan

Alexis Tsipras, the leader of the Radical Left party, who yesterday was an unknown, is today inspiring leftist movements all over Europe — and dragging the respectable Social Democratic parties toward a policy of reckless spending, expropriation, and — as I argued in a recent National Review article [“Four Kinds of Dreadful,” June 11] — the Dario Fo fun anarchist policy of “Can’t Pay; Won’t Pay.”

The fifth criticism explains the first four: Angela Merkel’s policy of installing a European economic government in order to sustain the euro would need to be rooted in a European demos — a European national identity — that simply doesn’t exist. As long as the fiscal union lacks a demos to give its collective budgetary decisions democratic legitimacy, the prospect of a government endorsing a Brussels decision but finding itself unable to implement it in the face of popular opposition remains a real likelihood. What then? Send in the troops? Expel the recalcitrant people (along with their compliant government)? Impose a fine? The options are not very promising. Without a demos underpinning it, the policy of a European economic government can’t work: It can’t bridge the gap between northern and southern Europe; it can’t be reconciled with the democratic government of member states; it can’t actually be implemented against the popular opposition which it is bound to stir up; and it is doomed to be no more than the unfulfilled historicist dream of a bureaucratic “vanguard class” of a European nation that doesn’t exist — and that may never exist.

But the fact that this particular single currency, covering these particular countries at this particular time, cannot work does not mean that a differently structured single currency cannot work. A workable euro is a possibility. Getting to it will be hard and painful; but it can be done. But how?

Consider this: You often hear supporters of the euro say such things as: “Well, we should never have let Greece in. It was a mistake.” Why not then remedy the mistake and remove Greece from the euro? Something like that is what the German government seemed to be aiming at shortly before the Greek elections, but the Greeks frustrated its plans. As Fielding might have put it: The Germans would have raped Pallas Athena if she had not, by a timely compliance, prevented them. Maneuvering Greece out of the euro, whatever its other effects, would certainly reduce the moral hazard created by her continuing membership.

Other critics have suggested that Germany should leave the euro — which would mean the remaining euro would be sharply devalued against other currencies. That would, in a single bound, reduce the difficulty for countries such as Portugal of restoring their competitiveness.

But the proposal for restructuring most often heard is for the creation of two euros — a southern euro and a northern one. The former would be immediately devalued against the latter, restoring southern competitiveness, reducing moral hazard, and also reducing the need for massive cross-border monetary transfers. This would create difficulties, of course. Germany would find that because its artificial undervaluation in the present euro was gone, its export success would be harder to maintain. France would have to decide between its interests, which would dictate joining the southern euro, and its prestige, which would require membership of the northern one. Watching Paris agonize over that would be entertaining. Over time, the member states of Euro 1 and Euro 2 might gradually converge, eventually restoring a unified euro. But that would be shaped by practical evolution as well as by theoretical ambitions.

And the same should — and, I think, will — apply to the European Union as a whole. We should not expect an EU of almost 30 members (and still growing) to retain the same one-size-fits-all structure that was suitable to the original six-member European Economic Community and to the slightly larger groups of the 1970s and 1980s. Some basic structural unities would remain — continental free trade, a common external tariff probably, some legal principles reflecting Europe’s civilized values — but otherwise-different countries would adopt different elements from the à la carte menu of European unity. That principle has already been adopted in relation to the euro — several EU states remain outside it, and those East European states that have promised to enter in due course will probably not now do so. The same principle could be applied more widely, with different European countries adopting different levels of integration in different areas. And if some countries — Germany, France, Benelux — wanted to forge ahead to a greater degree of political integration, maybe evolving into a new single European nation, the rest of us should be happy to endorse this. It would be the kind of experimentation that federations are supposed to encourage and foster; it is why the federal principle of jurisdictional competition was invented. This kind of variable-geometry Europe, as it is called, might actually produce faster integration with less pain than the kinds of plans being pressed upon Mrs. Merkel.

And they would be more in harmony with the dispersed authority of traditional Europe that made so many of the glories of our civilization possible.

John O’Sullivan is editor-at-large of National Review.


Sign up for free NRO e-mails today:

NRO Polls on LockerDome

Subscribe to National Review