The Eurozone crisis has led some to predict its collapse, and others to fear that Europe will become a German empire. But a third line of thought, from those wanting a far more integrated Europe, holds that the crisis is actually a god-given opportunity that will force European countries into a far closer political union than they would have contemplated otherwise.
This thesis runs as follows.
“Our aim has always been to create a United States of Europe, bigger and stronger than the USA. However this can only be done in stages, since national identities in Europe are very strong. Europeans have fought one another through history, leaving bitter memories.
“Besides, the countries have very strong social and cultural differences. For instance, Germans are high-saving, high-productivity Protestants, while Italians are high-spending, high-borrowing Catholics. Melding different national identities and cultures into a European whole cannot be done by negotiations.
“The crafty way forward is to force the pace of European integration faster than the public wants. This will, of course, lead to crises. But every crisis will force voters to choose between greater unification and the huge costs of de-integration. Hopefully they will repeatedly opt for greater unification. In the process, they will give up facet after facet of their national identity and culture. In stages they will develop a unified European identity, while retaining plenty of their original identity and culture.
“Seen in this light, developments in Europe are not calamitous. Rather, things are going absolutely according to script. A decade ago we created the Eurozone, whereby 17 of the 27 countries of the European Union gave up their national currencies and adopt the euro, overseen by a European Central Bank.
“ Many economists like Martin Feldstein said we were asking for disaster by creating a monetary union without a political union. Why? Because a monetary union (common currency) deprived uncompetitive areas of the ability to devalue to improve their competitiveness. This would not matter in a political union like India, where funds flow automatically from surplus states like Maharashtra via New Delhi to deficit states like Assam and Bihar. But the Eurozone is not a political union, so funds do not automatically flow from Germany to Greece or Italy.
“Every transfer from the northern Europeans to southern Europeans causes resentment and heartburn. The Germans and Dutch resent unending transfers to what they see as lazy southern bums, and insist on forcing draconian conditions on the lazy bums. But these draconian conditions will push the southerners into recession and wage freezes for a decade, and have sparked street riots against what is seen as neo-Germanic imperialism.
“Feldstein and other critics are wrong in thinking that we did not see the dangers: these were obvious to us too. But we saw more opportunity than risk. We knew a monetary union was unviable without a political union, or at least a fiscal union as a half-way house. But there was no public support at all for a political or fiscal union. How, then, to proceed?
“Our solution was Machiavellian: go ahead with the unviable monetary union and let it cause a Eurozone crisis. Once this happens, we theorised, voters in both surplus and deficit countries will refuse to face the terrible consequences of abandoning the euro. Hence they will agree to once-unthinkable changes in their policies and attitudes to stave off collapse.
“This strategy has worked marvellously, exactly as planned. Greece has slashed pensions, staff and holidays, and is already looking less Greek. Spain has amended its rigid labour laws. Italy has reduced pension and welfare benefits. Even Germany has changed.
“The European Central Bank started with the conventional German position of no rescues. But it has now, by subterfuge, facilitated indirect rescues. In December it gave European banks half a billion euros of cheap three-year loans, and will give a second installment next month. This flood of money, ostensibly to meet liquidity needs, actually enables banks to start buying government bonds of distressed states. So, the distressed countries are now able to raise fresh loans at falling interest rates. Italy and most Eurozone countries are beginning to look viable again, though Greece is clearly an exception.
“Remarkably, even Germany looks less puritanical or Germanic after agreeing to back-door rescues. It is changing no less than Italy, Greece or Spain, developing a new European composite identity.
“Jean Monnet, intellectual father of the European Union, predicted that a united Europe would be forged through crisis. We are implementing his vision. Sooner than anybody expects, we will have a United States of Europe.”
Is this a bit too slick and optimistic? Probably. But it surely has a kernel of truth.