European Union leaders will meet again this week on Greece’s fiscal crisis and the ongoing financial turmoil it is causing. To most Americans, the EU’s problems seem remote, given our own turmoil over President Obama’s zeal to radically restructure the U.S. health care system. In fact, however, profound implications for trans-Atlantic relations over the long term lie just beneath the often-impenetrable EU financial jargon. Here’s why:
Greece is just one of several countries, including Spain, Portugal and perhaps Italy, that have not adequately constrained government spending. As budget deficits escalated, financial markets questioned Greece’s fiscal stability; if Greece still had a national currency, it would be under enormous pressure, reflecting market concern that increased debt or inflated currency would be used to fund the deficit.
Of course, since Greece joined the euro-zone, it no longer has its own currency to debase, and its lack of fiscal discipline has caused downward pressure on the euro instead. All euro-zone members are thereby immediately affected, thus escalating pressure particularly on Germany, the EU’s dominant economy, to “do something” to prevent Greece’s crisis from infecting the entire Union.
Germans, not surprisingly, are unenthusiastic about rescuing profligate Greeks from the consequences of their actions and thereby shouldering part of the costs they feel Greeks should bear. Of course, because raising taxes, another solution to budget deficits, is political poison to Greece’s government, the EU has not found an easy solution. The most likely short-term fix at the moment is for the International Monetary Fund to come to Greece’s rescue, just as if it were a Third World country unable to manage its affairs, with perhaps some additional funding supplied by other EU members.
Why does the EU not opt for an entirely European solution, resolving Greece’s crisis with European resources? In substantial part, the explanation lies in a wrinkle in German constitutional law, whereby Germany’s very membership in the EU rests on the commitment that Germany’s economic stability will not be jeopardized by EU policy. This little-known constitutional interpretation of Germany’s ratification of successive EU treaties is intended to preserve the euro’s stability. Post-World War II German governments insisted on the Deutschmark’s stability, thus avoiding mistakes that undermined earlier currencies and ultimately facilitated Weimar Germany’s collapse and Adolf Hitler’s rise. Today’s Germany is determined not to repeat those mistakes with the euro.
Accordingly, Chancellor Angela Merkel has prudently avoided bailing out spendthrift Greece, looking instead to “outside” intervention by the IMF even if so doing infuriates France and other EU Firsters. Mrs. Merkel’s views smack of euro-treason to them, and indeed they are, because they stem from that German constitutional imperative of currency stability rather than on the “communitaire” value of solving problems within the EU.
Clearly, Germany has now reached its outer limit for taking care of its poorer relations in Europe. Mrs. Merkel has raised the possibility, if the EU’s financial difficulties worsen, of expelling poorly performing governments from the euro-zone, even though the EU’s various treaties do not currently provide for so doing. Analysts closely following the financial crisis have even raised the possibility, as a worst case scenario, of Germany in effect withdrawing from the euro. Perhaps joined by a small coterie of followers, Germany and its acolytes would leave the euro to flounder and sink while creating a new, more viable, more stable currency.
While not in prospect anytime soon, the very fact that this scenario is even being whispered in financial circles shows just how parlous the EU situation has become. The turmoil and uncertainty to date, and the prospect for more, already have greatly weakened the potential for “ever closer union” that lies at the heart of the European project for its strongest supporters.
And that is where the United States comes in. For years, the EU’s common foreign and security policy, and particularly the prospects of a robust EU military capability, have constituted a dagger aimed at NATO’s heart. Of course, the unwillingness or inability of EU countries to finance such a capability has already weakened the threat, and the inadequate performance of continental European NATO members in Afghanistan has demonstrated that the EU’s grasp exceeds its reach. Nonetheless, the United States has no interest in seeing EU, weak or strong, grow militarily separate from NATO.
Thus, the collapse or at least the decline of intra-EU political cooperation, facilitated by the corrosion of trust inherent in the EU financial crisis, inevitably will affect the common foreign and security policy. It may well affect and permanently hurt the continued quest for an “ever-closer union.” If so, the United States and its European friends who believe in popular sovereignty, limited government and Atlanticism can only rejoice. The EU may be weaker, but the West as a whole will be stronger.
John R. Bolton, a former U.S. ambassador to the United Nations, is a senior fellow at the American Enterprise Institute and author of “Surrender Is Not an Option: Defending America at the United Nations and Abroad” (Simon & Schuster, 2007).