LONDON – As Europe’s financial crisis goes from acute to chronic, the dispute over who will bear the costs of resolving it is fueling the emergence of a new generation of political movements. In the so-called periphery, political upstarts promise citizens an alternative to austerity. In the eurozone’s “core” countries, they purport to protect taxpayers from relentless demands for debtor-country relief. How Europe’s leaders respond to these new political challengers will determine whether the monetary union stabilizes or fractures.
Europe’s political elite have, for the most part, been strongly integrationist. Given that they are largely of the post-World War II generation, they are acutely aware of the benefits of a peaceful Europe. In the 1990’s, differing visions of European integration led to a problematic compromise. In order to secure France’s backing for German reunification, Germany agreed to create a monetary union – but not a fiscal union. Now, Europe is suffering the consequences of that Faustian bargain.
At the same time, Europe’s leaders are under pressure from a new generation of voters, who grew up in the shadow of the Berlin Wall’s collapse. The lifting of the Iron Curtain gave the West access to a vast supply of cheap labor in Eastern Europe. China’s subsequent emergence expanded that supply further, culminating with China’s entry into the World Trade Organization in 2001. As a result, many of Europe’s economies began to fall behind.
European leaders hoped that a monetary union would help Europe’s less competitive economies catch up to the richer countries of the north. And, during its first decade, the euro ostensibly delivered. Just as cheap mortgage financing papered over the cracks of growing income inequality in the United States, cheap capital from the north accelerated Europe’s apparent economic convergence.