The Naked Euro

LONDON – Dramatic challenges, and mediocre responses: that is the history of the European Union. All too rarely does the EU rise to the level of events, which is why Europe is fading economically and geopolitically.

The 1958 Treaty of Rome, which established the European Economic Community, was Europe’s great leap forward. But the decision to create a common market without a common government was simply storing up trouble for the future. Everything since – enlargement to 27 member states and the creation of the 16-member eurozone – has widened the gap between rhetoric and reality. Euroland has gone on promising far more than its history enables it to deliver.

The Greek financial crisis is the latest example of the gap between reality and rhetoric. At root, it is a crisis of “enlargement,” in this case enlargement of the eurozone. Unprecedented effort at fiscal discipline in the 1990’s – helped in Greece by creative accounting – enabled Portugal, Italy, Greece, and Spain (disobligingly known as the PIGS) to meet the entry criteria in 2002. But once in, the pressure was off. Most of the Mediterranean countries continued on their spendthrift ways, confident that the markets would not call them to account.