A year short of a century and a half ago the United States of America began its bloody debate over whether the whole was greater than the sum of the parts, and thus an otherwise unknown stream in Manassas, Virginia entered into history. The name of that stream – Bull Run.
Europe is on the verge of a similarly momentous debate regarding the relationship between its individual member States and its central institutions. This time it may be a Bear Run that ushers it in.
The weapons employed may well be different, as may the result. What is surprisingly similar is the level of sentiment of those on both sides of the debate.
At the heart of this debate is the age old question, who is my neighbor? Who should I fend for, however reluctantly, when they are in need and whom may I ignore? Whose opinion am I duty bound to take into account and whose should remain unheeded? The success of this European Adventure hinges on the debate coming down on the side that supports the premise that each and every European has around 400 million neighbors; the idea that a Greek European is as important to a German European as an Alabaman American is to a New York American.
As Europe stands at the moment, it cannot stand much longer. It either has to advance or retreat. The position of the member states has to be more closely aligned with the position of its central institutions with regards to where the power lies. Will the electorates in the various member states tolerate deferring to the decisions and edicts of remote central institutions from which they feel estranged? Nowhere is this conflict more apparent than between the members of the Euro Zone, and the European Central Bank.
By ceding control of monetary policy to the European Central Bank, Euro Zone member states were effectively choosing to operate a joint bank account rather than each have separate ones. The Growth and Stability Pact was basically an agreement not to draw out more than your State’s fair share by not allowing one’s deficit to exceed 3% of GDP. The Growth and Stability Pact is no more. So what future for the Euro?
The Euro can only survive this current onslaught if it is in the interests of all 16 Euro Zone States. The implication is that if the stronger Euro Zone States wish to prevent a weaker state from leaving they must ensure that the weaker States are decisively better off in, or, if you prefer, worse off out, of the Euro Zone. So far the approach has been focused on the former rather than the latter; the carrot has been chosen over the stick.
As pressure mounts on the elected governments of Euro Zone countries they will face a conflict between the needs of their own individual State and the needs of their neighbors. For the Euro Zone to survive, not only do they all have to decide in favor of Europe, they have to do so in a manner that does usher in a subsequent government that will put the needs of the individual State first, or at least not until the crisis is past, a time frame measured in years rather than months.
The weaker the overall system becomes, the greater the danger of a country departing the Euro Zone grows, the riskier it will be for national leaders to risk all on the center holding. If the ship looks like it is about to sink we may see some abandon the bilge pumps in a bid to get in the best lifeboat. This could lead to unexpected results. France and Germany may grimly look on as the situation becomes more and more untenable, caught in a political inertia, like a rabbit in the headlights waiting for impact. On the other hand they could try and get ahead of the curve, abandoning the ship before it sinks, to form their own currency union, possibly with a few of the less damaged Euro Zone members.
Either way, it would appear unlikely that the European Union 27 could survive following such a rupture. This would not be so much an end to European experimentation, but the beginning of a new, hopefully sounder, European experiment, with more reliance on political and economic reality, and less on politically correct wishful thinking.
History has yet to decide on the outcome; whilst we await the verdict I suggest you sell Euros and buy gold.