Foreign Policy Watch

Geopolitical musings through a progressive lens …by Matt Eckel and Jeb Koogler

What Would a Euro Collapse Look Like?

Reading Roger Cohen yesterday and Phil Levy and Andrew Sullivan today got me puzzling again over a predictive question that’s had me thinking for months: what precisely would happen to the E.U. politically should the Euro collapse? In other words, the economic dangers are manifest and have been laid bare for some time by people much smarter than me. The possibility of a second global financial crisis, 1930s-level unemployment across the industrialized world etc. should be frightening enough on their own to get European leaders to “just do it.” Unfortunately, it isn’t, and there are more than a few people predicting an eventual breakup – or at least a shrinking – of the Eurozone. The economics, though, are only one part of the story. Much of the commentary I’ve seen has implicitly and explicitly conflated the Eurozone – the group of countries that use the Euro as currency – with the European Union – the political-economic organization that does much more than simply manage a currency. There’s a pervasive sense that the survival of the larger European Union as an entity depends on the survival of the Euro as a currency. Cohen’s column yesterday is emblematic; he waxes poetic about the E.U. as a political achievement, the deliverance of Europe from the barbarism of 1914-1945, then begs Europe’s leaders to save the currency:

The European Union was created for such a moment. It was meant to guarantee the impossibility of the worst — not to deliver Europeans to postmodern bliss but to save them from the hell that began almost a century ago in 1914 and did not really stop until the Continent lay in ruins in 1945.

Now, thankfully, the big bazookas are financial. Roll them out, whatever the subsequent cost in inflation. Irrevocable means just that: The euro cannot be turned back. There is no soft euro exit imaginable, only mayhem and danger.

Recapitalize the banks. Bulk up on the rescue fund. Turn bankers’ Greek haircuts into buzz cuts. Do whatever it takes. Germany, ushered from ruin by the European Union, must lead the safeguarding of the euro or risk the loss of the stability that it prizes above anything.

Poland’s finance minister warning of “war within ten years” if the Eurozone collapses is a slightly more hyperbolic version of this same attitude. The economic crisis has laid bare not simply the E.U.’s institutional dysfunction but its lack of ideological and emotional cohesion. Germans don’t look at Greeks as countrymen, so they won’t foot the bill for Greek excess (or Spanish or Italian basically blameless economic fragility).

I don’t necessarily disagree with this attitude. Europe’s future as “Europe” does seem to hang in the balance at the moment (though Mr. Rostowski’s dire predictions are perhaps overblown). The thing is, I can’t quite pin down why. If the Eurozone was a mistake from a purely economic, technocratic perspective, couldn’t its correction allow for Europe’s political union to run more smoothly? In other words, the E.U. is a colossal amalgamation of legislative institutions, courts, regulatory regimes, trade areas, travel zones, security apparatuses etc. Most of those don’t require a single currency in order to operate. Indeed, most have nothing whatsoever to do with currency. Indeed, even at the currency level there could probably be an exchange rate management mechanism put in place to allow for necessary fluctuation without devolving into beggar-thy-neighbor madness. Why is the death of the Euro, then, held to signal the death of the E.U.?

I suspect this is an instance where ideas really matter. The E.U. has always been a mixture of institutional fact and aspiration. There’s a sense in which the E.U. works – to the extent that it does – because it represents not just what Europe is but what it might be; a place where tribal attachments give way to to a new form of citizenship and a new form of politics. A blueprint for moving beyond the nation state. Kant’s Perpetual Peace realized. I’m suspect much of the political damage done by a Eurozone failure will be less material than ideological. A slap in the face to the idea that true integration is desirable or necessary or even possible. And that can be a self-fulfilling prophecy.

All that said, I’d love to see a regional expert outline just how a Eurozone collapse would ripple through the rest of the E.U.’s pillars. At the moment, the causal chain is pretty vague.

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