The Greek and Italian governments change. Partisan politicians are replaced with technocrats. France introduces new austerity measures. Spain will elect a new government on Sunday to confront a 21-per-cent unemployment rate, and a 45-per-cent rate for young people. The European Commission says growth is so anemic that the European Union teeters on the brink of another recession.
There are, as we know, interlocking crises in Europe, especially within the euro zone of 17 countries. Some make headlines; many lie below the surface. No easy way out is obvious from any of the crises, let alone all of them.
The imbalances within the euro zone are staggering. We know all about plans to lend money to catastrophically indebted countries, starting with Greece, in exchange for cuts and asset sales that will impose at least a decade of hardship. These plans are the source of simmering popular anger in northern European states – the paymaster countries starting with Germany.
But, in the Netherlands, the far-right party that wants to end the euro stands second in the polls. And the True Finns party in steady, reliable Finland has made startling gains, among other reasons by trashing the euro. The Europhile leadership in the northern countries is paying a political price extracted by Europhobia.
The southern European countries (and Ireland) have massive current account deficits paid for through the European Central Bank that the northern Europeans have financed. The sums since the summer are staggering, an estimated €630-billion.
In the past, countries in terrible shape (think of Argentina) have almost always used currency devaluation as a recovery tool (and outright refusal to pay debt or some sort of debt relief). But the weak countries of Europe are imprisoned in the euro system, so they can't devalue.
They can be forced into a deflation where assets decline in value – which is what's happening now and will continue to happen on a huge scale as assets are sold to foreigners. Or the northern countries can inflate their economies, hardly an appetizing political option, especially in Germany with its haunting hatred of inflation tied to the 1920s. Within the euro zone, to suck and blow at the same time – that is, to deflate and inflate – to meet two entirely different set of circumstances is impossible.
After the euro came into being, interest rates were low, borrowing was easy, the currency seemed stable and strong, and so countries such as Italy, Portugal, Spain and others went on a spending/borrowing binge. Their debt ratios soared, although their ability to pay down those debts did not. Came the cascading crises of bank failures, recession and prolonged slow growth, and they've become overwhelmed.
Each country confronts these interlocking crises differently, but nowhere is the debate more intense and fraught than in Germany, because nowhere else is the sense of obligation and history so omnipresent. Since the beginning of postwar German democracy, West Germany and then a united Germany didn't want to lead in Europe. Germany preferred to support others that led: the United States and France. It was as if the message of Thomas Mann was drilled into the consciousness of every German leader: There should be a European Germany, not a German Europe.
The creation of the euro – to which, of course, Germany contributed – was to be a large step toward the political project inside Germany of deepening a European Germany. But now that the euro project is under unprecedented stress, there's no willingness – perhaps not even an ability – in Germany to lead. At least not by countenancing much bigger sharing of money within Europe, a much weaker euro, or allowing the European Central Bank to issue bonds.
While Germany struggles to find solutions, without really wanting to lead (because, for deep historical reasons, such leadership is not necessarily wanted by Germans or others), the population grows restless as its money goes south.
For now, the economic crises of the euro are centred in the south. The longer-term political crises might be those in the north, especially in Germany, if public opinion decides that enough is enough.