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Doug Saunders (Randy Quan for The Globe and Mail)
Doug Saunders (Randy Quan for The Globe and Mail)

Doug Saunders

Call it what you like, Europe is now a continent divided Add to ...

We have now entered a very dangerous place, here in Europe, where the economic and monetary crisis is triggering a widespread crisis of politics and citizenship. Until this week, the debt emergency had brought everyone closer together. Now it will drive the continent apart.

It is easy to confuse the euro zone, the 17-country bloc that has shared the euro as its currency since 1999, with the European Union, the 27-country political, legal and trading confederation, created in the 1950s, that makes 500 million people more or less common citizens. The EU created the euro, in what we now all know was a flawed process, and selects the banking officials who oversee it.

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And it was the EU that held the euro zone together during the first three years of this crisis. With the European Central Bank paralyzed in an anomie of German self-interest, it was a series of EU summits in which the worst was prevented from occurring. And there came to be a widespread understanding that any lasting resolution will require much tighter fiscal and political integration – something the leaders of France and Germany acknowledged overtly this week.

But this is also where the old vision of a common European citizenship dies. Angela Merkel and Nicolas Sarkozy and their officials this week called their new vision, variously, a “core Europe,” a “two-speed Europe,” a “variable-geometry Europe.” It is a way to keep the much poorer citizens of the failed Mediterranean states on board with their wealthier northern neighbours – even if some of them drop the euro. But it also ends democratic equality.

A hint of that was given when Greek Prime Minister George Papandreou’s surprise attempt to take the EU’s bailout package to his people with a referendum was quickly scuppered by EU pressure, at the cost of his job. It’s true that the vote would have caused a debt-market cataclysm far worse than the one the bailout was meant to prevent. But it was also a dangerous sign of the future.

For this happens to be the moment when voters in Southern Europe will have to be told that, if they want their countries and their livelihoods to survive, they must face a sharp and more or less permanent reduction in pay and standards of living.

To understand this, just look at a core issue behind the crisis: labour costs. In 1999, at the dawn of the euro, the cost of an hour’s labour in Spain, Italy or Greece was 15 to 20 per cent cheaper than it was in Germany. But then Berlin used the new currency to boost exports and cut its production costs dramatically, while the southern countries levelled their wages and standards up to continental averages. By 2010, an hour’s labour in the Mediterranean countries cost 10 to 15 per cent more than its German counterpart.

Because it costs them so much more to produce their own goods, this makes the southern nations permanently reliant on imports – and on loans, from exporting countries like Germany, that make those import purchases possible. That imbalance was what created the debt crisis, and it will happen again and again unless either Germany and France permanently subsidize the European states (politically impossible) or they cut their labour costs and government expenses and get on the path to export competitiveness.

That is, a number of EU members will have to become developing countries again – after having lived as first-world countries for more than a decade. They’ll have no choice. This is true even if they quit the euro and readopt the drachma or the lira. In fact, possibly even more so: Most of their debts, including existing bonds, will remain euro-denominated, and will become grossly expensive if repaid with a hyper-deflated new currency, making their governments even meaner.

The problem is that nobody would vote for this. Would you? And what makes this even worse is that it’s being delivered not by elected leaders but by EU officials – and in an extremely unwise decision, the EU’s 2009 introduction of a president and a foreign minister made them appointed, not elected, officials.

As Greece, Italy and Spain are all changing governments this month under crisis circumstances, their people are being told, by appointed people from the EU and the ECB and the International Monetary Fund, that they won’t have the same democratic right to control their economic futures as their northern neighbours do. They may give this innocuous names like “two-speed,” but it is a recipe for division, anger and extremism – the very things the EU was created to prevent.

Follow on Twitter: @dougsaunders

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