BRUSSELS – The euro area confronts a fundamental crisis that attacks on financial speculators will do nothing to resolve. The European Council of Ministers had to promise hundreds of billions of euros to its financially imperiled member countries, even though the European economy as a whole is not really in crisis. On the contrary, most surveys and hard economic indicators point to a strong upswing, with the one country that is in really serious trouble, Greece, representing only 3% of the area’s GDP.
Nevertheless, the crisis poses an almost existential challenge to the European Union – and has required such huge sums – because it directly implicates the key underlying principle of European governance: the nature of the state. The case of Greece has raised the simple but profound question: can a member state of the EU be allowed to fail?
One view is that the state is sacrosanct: the EU has to intervene and help any errant member to get back on its feet. But this view assumes that all member states adhere to the Union’s underlying economic values of fiscal prudence and market reform. Problems could arise only because of unanticipated shocks, temporary local political difficulties, and – the favorite culprit – irrational markets.
Applied to Greece, this view implies that the country’s fiscal crisis resulted from an overreaction by world financial markets to local political difficulties (excessive spending by the Greek government before last year’s elections). Moreover, it implies that the crisis is fully under European control, and that the European authorities have elaborated a comprehensive plan that will resolve all of Greece’s fiscal and structural problems. Hence the official – let’s say “Southern” – refrain: “The IMF/EU plan will succeed. Failure is not an option.”