Rescuing Europe from the Ground Up

MUNICH – The European Union has earned its place as an instrument for peace in Europe. Free trade has brought prosperity to its peoples, and the freedom to choose a place of residence guards against the resurgence of totalitarian regimes. The Acquis Communautaire protects all member states’ citizens under the rule of law. Anyone who doubts the existence of these benefits need only look to Kyiv’s “Euromaidan,” where hundreds of thousands of people have been gathered for weeks to demonstrate their support for closer ties with Europe, rather than an alliance with Vladimir Putin’s Russia.

The paradox is that the same enthusiasm and benefits do not apply when it comes to Europe’s common currency. On the contrary, the euro has plunged southern Europe and France into a deep economic crisis that is fraying the nerves of all involved. I have never seen so many swastikas and hateful slogans directed at Germany. The ex-head of the Eurogroup, Luxembourg’s longtime Prime Minister Jean-Claude Juncker, has said that 2013 makes him think of 1913, when no one could imagine what would happen a year later. That may be stretching things a bit, but a statement like this by such a distinguished politician is chilling.

Unfortunately, the crisis is far from over. While the insurance that the European Central Bank has offered, free of charge, to buyers of EU members’ government bonds has temporarily calmed financial markets, ordinary workers fretting about their jobs look to the future with trepidation. In Greece and Spain, half of all young people not studying are unemployed, as is a quarter of the adult workforce. Particularly worrying is the continuing rise in unemployment in France and Italy, where industrial production has been shrinking and price competitiveness continues to deteriorate.

The euro itself is responsible for this debacle. During the first several years after the EU’s Madrid Summit in 1995 officially launched the move toward a common currency, too much capital was steered into southern Europe, creating an inflationary credit bubble there. An inordinately lax regulatory environment proved lethal, encouraging northern European banks to pad their balance sheets with southern European government and bank bonds. When the bubble burst, it left in its wake woefully expensive economies that had lost their competitiveness.