Europe must not allow Rome to burn

Written on November 16, 2011 by Ángeles Figueroa-Alcorta in Europe, Globalization & International Trade, Political Economy

By Martin Wolf

Confronted with turbulence in the provinces, the eurozone has sent in new governors. In place of the wayward George Papandreou, Greece now has Lucas Papademos, former vice-president of the European Central Bank. Instead of the unruly Silvio Berlusconi, Italy has Mario Monti, former head of competition policy at the European Commission. Europe is putting in place these new governors in members that have descended to the status of clients. Will this work? Not without a huge amount of support from the centre.

What is at stake today is not only the stability of the European – perhaps the world’s – economy, but the survival of the most successful – and certainly most civilised – effort to unite Europe since the fall of the western Roman empire 1,535 years ago. As Walter Scheidel of Stanford University notes in a fascinating essay: “Two thousand years ago, perhaps half of the entire species had come under the control of just two powers, the Roman and Han empires.”* Both collapsed. But the Chinese empire was repeatedly restored and enlarged, while the Roman empire divided irretrievably. Yet the dream of reunification never died. It was apparent in the claims of popes and “holy Roman emperors”. It was carried by Napoleon’s eagles. It is the aspiration embedded in the European Union.

The shift in the centre of economic gravity northwards is also old.

So, when Germany’s Angela Merkel, chancellor of Europe’s most powerful state, calls “for Europe to build a ‘political union’ to underpin the euro and help the continent emerge from its ‘toughest hour since the second world war’” I take her seriously. I have little doubt, too, that the majority of the German business and political elite believes that the survival of the euro and of a united Europe is in the country’s interest. The question is whether they are prepared to pay the price.

In the centuries after the fall of Rome, Europe became Babel. Uniting such diversity is a daunting challenge. Politics are local, not European, as are the politicians. This might not matter if decisions taken at the European level were of little import. But monetary and fiscal policies or labour market regulation are at the core of democratic politics. The greater the economic divergence within the eurozone, the greater the stresses. Unfortunately, divergences in competitiveness, before the crisis, and in the price of credit, after it, have been extreme (see charts).

This, then, is where the postwar European project itself has arrived. On its fate hangs the European economy, the global banking system and perhaps the world economy.

My interpretation of the actions of chancellor Merkel is that “just enough, just in time” is itself the strategy. In this way, she may hope, the German people will come round to doing more. In this way, too, she may expect, peripheral members will be brought into line. She will not allow things to get so bad that the eurozone collapses; but she will not give so much money that the backsliders slacken their efforts. Read more…

As published in www.ft.com on November 15, 2011.


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