Europe Re-Divided?

With the entire burden of adjustment being shifted to the eurozone's debtor countries, the next step in European integration must be clearly acknowledged alongside implementation of the EU’s crisis-resolution mechanism. Otherwise, deficit countries will have no reason to hope that they can escape their predicament.

NEW YORK – The so-called euro crisis is generally seen exclusively as a currency crisis, but it is also a sovereign-debt crisis – and even more a banking crisis. The situation’s complexity has bred confusion, and that confusion has political consequences.

Indeed, Europe faces not only an economic and financial crisis, but also, as a result, a political crisis. The various member states have forged widely different policies, which reflect their views rather than their true national interests – a clash of perceptions that carries the seeds of serious political conflict.

The solution that Europe is about to put in place will be effectively dictated by Germany, whose sovereign credit is necessary for any solution. But this ignores Germany’s major share of responsibility for the currency and banking crises, if not for the sovereign-debt crisis. France’s efforts to influence the outcome are ultimately limited by its dependence on its close alliance with Germany for its AAA sovereign ratings.