- The Washington Times - Monday, March 1, 2010


Congressional pursuit of a Goldman Sachs role in the Greek economic crisis is largely a red herring. The pieces may be picked up by speculators like George Soros, who ostensibly made his first $2 billion by betting on the end of the last attempt at European currency coordination. But the crisis of the European Union’s common currency is much bigger than that and isn’t going away, because it represents the near end of an experiment in geopolitical sleight of hand that was doomed from the outset.

Of course the euro did seem the obvious next step in “the European project” — the attempt to end the Continent’s wars, culminating in World War II, which almost destroyed European civilization. The towering figures of Konrad Adenauer and Charles de Gaulle saw German-French political unity as the only way to avoid future conflicts. Their inspired helpmates — Robert Schuman, Jean Monnet, Herbert Wehner and a host of lesser-known technocrats — tried to build a parallel economic infrastructure. And under Washington’s sheltering arm, the Soviet threat was held in check and eventually defeated by the world’s most successful military alliance, the North Atlantic Treaty Organization.

A common currency appeared logical to complete the world’s biggest, richest common market.

But what a few foresaw as a buried bomb has now exploded. European political/economic unification has proceeded under the unelected, unrepresentative European Commission, which could dictate the smallest business matters. But it could never get a grip on individual national finance ministries.

In a nation-state with a functioning representative government, a parliament would dictate the economic course of action. But the delegates who sit in the European Parliament in Strasbourg, France, have about as little control over the Brussels Commissars and the European economy as the Continental Congress had over the quarreling 13 Colonies.

Inevitably, a common currency has been defeated by differing national economic agendas, which Brussels, for all its bureaucratic skills, has not been equal to controlling.

Greece, Spain, Portugal and Ireland were profligate in creating welfare states modeled after big brothers in France, Germany and the United Kingdom. (Note for President Obama: Yes, that high-speed Spanish train, all those windmills, etc., you so admired in your introduction to Europe are fine. But they don’t pay the bills.) It’s important to recall that while Greece’s annual deficit — nearly 13 percent of its gross domestic product — is unsustainable in a worldwide recession, it is not bigger than Britain’s (even though the British economy is so much larger).

Significant, however, is that London never chose to enter the euro. It is now going to sweat out a de facto devaluation of the pound sterling, which will force the British into austerity that they hope will lead to eventual recovery. Greece may yet be forced/volunteer into opting out of the euro to re-establish the world’s oldest currency, the drachma, in order to accomplish the same. Strikes, rioting and nihilistic student revolts notwithstanding, it has been the tried-and-true method in the past to achieve a new balance. And it may yet be the one the Greeks will have to take, though none of the European treaties has a provision for how a member can secede from agreements.

As the crisis escalates — Spain’s economy is bigger than those of Greece, Portugal and Ireland combined — a brutal choice is going to be forced on the European Commission leadership. Spain can’t devalue its currency to make its exports and beaches more attractive because the euro’s value is driven by Germany’s bigger industrial economy.

Either a new way will be found to bring Spain and the indebted members to take the bitter pill of severe austerity — something they were obligated to do under the Maastricht Treaty setting up the common currency but to which they have not adhered — or a breakup of the political framework is at hand.

That is why the growing euro monetary crisis is increasingly a crisis of the whole effort at a unified European state. Turning away from that goal is not an option, we are told on every hand — from the gnomes in Zurich (though the Swiss do not belong) to the dwindling pro-“Europe” claque in Britain.

But the German taxpayers, who never wanted to exchange West Germany’s “economic miracle” mark for the euro in the first place, are now called on for hundreds of billions of euros to pay for even a modest partial bailout of the PIGS (Portugal, Italy, Greece and Spain). Never mind that Germany’s 2009 trade surplus reached 135.8 billion euros, or $184.9 billion. But now with Germany’s own export-led economy facing grim prospects since 65 percent of German exports were to other eurozone countries, even that bailout may not be a real option. Chancellor Angela Merkel, with her feuding coalition at her back, has more than broadly hinted at just that.

International business editor Sol Sanders, a veteran foreign correspondent and analyst, writes weekly on the convergence of international politics and business-economics.

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