Will the European Union be a Casualty of the Global Economic Crisis?

For those who still doubt whether there is really much of a recession or global economic meltdown...

Growing Economic Crisis Threatens the Idea of One Europe
(click on link above for full article on NYTimes.com)

The New York Times, March 1, 2009

By STEVEN ERLANGER and STEPHEN CASTLE

PARIS — The leaders of the European Union gathered Sunday in Brussels in an emergency summit meeting that seemed to highlight the very worries it was designed to calm: that the world economic crisis has unleashed forces threatening to split Europe into rival camps.

The leaders of European Union countries who gathered Sunday in Brussels included, from left, Sergei Stanishev of Bulgaria, Nicolas Sarkozy of France, Andrus Ansip of Estonia, Demetris Christofias of Cyprus, Mirek Topolanek of the Czech Republic and Lawrence Gonzi of Malta. Olivier Hoslet/European Pressphoto Agency

Article Highlights:

“The European Union will now have to prove whether it is just a fair-weather union or has a real joint political destiny,” said Stefan Kornelius, the foreign editor of the German newspaper Süddeutsche Zeitung. “We always said you can’t really have a currency union without a political union, and we don’t have one. There is no joint fiscal policy, no joint tax policy, no joint policy on which industries to subsidize or not. And none of the leaders is strong enough to pull the others out of the mud.”
...

With uncertain leadership and few powerful collective institutions, the European Union is struggling with the strains this crisis has inevitably produced among 27 countries with uneven levels of development.

The traditional concept of “solidarity” is being undermined by protectionist pressures in some member countries and the rigors of maintaining a common currency, the euro, for a region that has diverse economic needs. Particularly acute economic problems in some newer members that once were part of the Soviet bloc have only made matters worse.

Europe’s difficulties are in sharp contrast to the American response. President Obama has just announced a budget that will send the United States more deeply into debt but that also makes an effort to redistribute income and overhaul health care, improve education and combat environmental problems.

Whether Europe can reach across constituencies to create consensus, however, has been an open, and suddenly pressing, question. ...

The problems are basically twofold: within the inner core of nations that use the euro as their common currency, which together have an economy roughly the size of the United States’; and within the larger European Union.

The 16 nations that use the euro — introduced in 1999, and one of the proudest European accomplishments — must submit to the monetary leadership of the European Central Bank. That keeps some members hardest hit by the economic downturn, like Ireland, Spain, Italy and Greece, from unilaterally taking radical steps to stimulate their economies.

Germany once vowed never to bail out weaker members in return for giving up its strong national currency, the deutsche mark. But German leaders are now faced with the unpalatable prospect of having to put German money at risk to bail out less responsible partners that do not adhere to European fiscal rules.

Within the larger European Union, fissures are growing between older members and newer ones, especially those that lived under the yoke of Soviet socialism. Some countries of Central Europe, like the Czech Republic and Poland, are doing relatively well. Others, including Hungary, Romania and the Baltic states, are in a state of near-meltdown.

But only two newer members — tiny Slovenia and Slovakia — are protected by being among the countries that use the euro, and there was little support on Sunday for changing the rules to allow more to join quickly.

Many new members have seen their currencies plummet against the euro. That has made their debt repayments to European banks, their primary lenders, a much greater burden even as the global recession has meant a plunge in orders from consumers in the West. Some countries are asking for aid, both from their European partners and from the International Monetary Fund, to prop up their currencies and the banks.

While Western European countries are reluctant, with their own problems both at home and among the countries using the euro, there is a deep interconnectedness in any case.