CHAPTER 1

Unhappy family

Nearly fifteen years after the birth of the single currencyas a landmark project for political and economic integration,Europe has healed some of the worst imbalances built upduring its rollercoaster ride into instability. But the correctionfrom earlier economic overheating has been achieved throughwidespread austerity that has brought with it recession,hardship and disruption, which in turn place a question markover European nations' ability to stick together for the rest ofthe journey. The trans-Atlantic financial crisis of 2007–08 andthe worldwide downturn in 2009 exposed fault lines in the eurobloc that had earlier been largely hidden. In mid-2013, outputamong the seventeen members of monetary union was around2 per cent lower than before the 2009 slump. Yet this maskedwidespread divergence between the stronger countries likeGermany, where the economy has grown by an overall 3 percent over this period, and the hardest-hit (and previously mostimbalanced) states such as Greece, where the economy is downnearly 25 per cent, and Ireland, Italy, Spain and Portugal, wheredeclines vary between 4 and 6 per cent.

The wastefulness and dislocation of Europe's efforts to curbbloated costs and credit-fuelled speculative booms generatedby the single currency have been enormous. Millions of peoplehave had their hopes shattered. Unemployment in 2013 is 27per cent of the labour force in Spain and Greece, 17 per cent inPortugal, 15 per cent in Ireland, 11 per cent in France and Italy– but only 6 per cent in Germany and the Netherlands. Publicsector debt across the euro area is around 95 per cent of grossdomestic product (economic output), compared with 70 percent in the early years of the single currency. Although there hasbeen much debate about relaxing austerity across the continentto get growth going again, there is still no clear-cut map for thearduous road ahead.

One of the worst outcomes of Europe's malaise is thatpopulations and governments no longer feel in control of theirown destiny: in a debilitating transfer of responsibility, shadowyoutsiders in Berlin, Frankfurt or Brussels are apportionedblame for national economic ills largely caused by home-mademismanagement. Europe's troubles therefore stem not simplyfrom the dire and divisive state of the economy, but also fromvexation and anger about the lack of legitimacy and democraticcontrol in new and ever more complex structures being erectedto try to correct these problems.

In theory, a blueprint for breaking out of the single currencyimpasse is not too difficult to devise. Over many years, thecomponents of the master plan have been the subject ofendless academic dissertations, institutional reports, politicaldeclarations and government treaties. The list of requiredelements for success includes a certain amount of harmonisationof economic aspiration, practice and performance; a degree ofpolitical and cultural homogeneity; a readiness to share commontasks and give up national decision-making in key fields; and anability and willingness to steer the overall construct, so that theensuing combination of costs, risks and benefits is reasonablyevenly shared.

Getting this balance right has so far been beyond thecapacity of the group of countries, led by France and Germany,that have fused their common destinies within the euro.This is a melancholy band; there are many explanations fortheir diverse discontentment, exemplifying Tolstoy's dictumexpressed in Anna Karenina: 'Happy families are all alike; everyunhappy family is unhappy in its own way.' The optimists saythe depth of discontent opens up a way forward. Citing pastepisodes when Europe has emerged triumphant from crisis,they argue that vexation is so great that Europe will somehowmiraculously forge solutions previously held to be impossible,such as a pact for ironing out debts and credits across the eurobloc or persuading the fearsomely competitive Germans tomake life easier for everyone else by increasing productioncosts and lowering industrial effectiveness. However, allkinds of positive-sounding artefacts to reinforce the eurowere proposed in previous periods of relative calm; theywere not enacted because no one really wanted them. Crisestend to breed egotism among governments and peoples, notsolidarity. Widespread perceptions (such as in today's Europe)that hardship is being spread unfairly make countries moreantagonistic, not more level-headed. In most democracies,willingness to put up with difficult and unpopular economicreforms is low enough at the best of times, and can result inthe electorate's rejection of the government that proposed orimplemented them. When, despite the outward appearance ofsolidarity in a monetary union, there is no overall agreement onburden-sharing at a higher European level, and when plannedEuropean structures seem to lack sufficient democraticcontrol, then the...