10.11.11

Europe’s Messy Family

Pretending that the EU countries are happy lovers doing nothing more than having a little spat tells you all you need to know about the euro-zone crisis.

Sunday was a big day: France and Germany agreed to produce a comprehensive plan to resolve the euro crisis within two weeks—and they mean it this time. Really—or maybe. With Angela Merkel and Nicolas Sarkozy it is always really and maybe at the same time, which, while annoying, actually makes perfect sense. It is annoying if you expect them to make a real commitment, but it makes sense if you understand they don't do real commitments. Ever. They just live together.

The EU is a bit like a dinner party game in which you get to work out what each state is like in a romantic relationship: the U.K. is the vaguely posh man who has been with you forever but is ashamed to tell his family. Greece is the woman your mother told you never to get involved with; Italy is the gorgeous girl you had wild sex with years ago, who has been cheating on you ever since. France is the lover who has a fit if you so much as look at another woman; and Germany is the ugly rich man who was always delighted to be with you, until he got his teeth straightened, lost weight, and bought some new clothes—and now is threatening to leave you with the kids, the mortgage, and a small allowance.

Apart from fun, the game has a broader point: the EU is not a marriage. It is a very modern relationship, in which the member states have been together for years. They have both separate and joint bank accounts, a few kids, and heavy mortgages—because everyone keeps their own house as well as a few communal ones. They also have accumulated debt, due to some misjudged spending sprees from the days when credit cards were handed out like candy. Like many such couples, every so often there has been a visit to the lawyers, in order to secure some of their mutual and separate long-term interests, but no one feels inclined to formally tie the knot.

As in any long-standing relationship, the sides know each other extremely well, and have learned to keep strife to a minimum by avoiding touchy subjects, like sovereign debt or bank capitalization. Being incredibly rich has helped too: every dispute could be resolved by another bout of spending—on agriculture, or bridges, or pipelines. But the financial crisis has made that difficult, forcing the sides to cooperate more fully for the first time in years. There has even been talk of reevaluating the relationship.

It should stick to that tradition in these hard times and go with a bold move: conditional debt forgiveness for Greece.

Some seek comfort in marriage—in the form of a fiscal and political union—ignoring the fact such formal moves often break up couples who have been cohabiting informally for years. Others seek precisely such a breakup, claiming they no longer love their partners, definitely not enough to put up with their irresponsible behavior—thus ignoring the reality of being old (Europe has a rapidly aging population), alone, and less rich (if not actually poor).

That such options of remaking or breaking the EU are being discussed, and rejected, reflects how little the current crop of EU leaders—especially Sarkozy and Merkel—understand the union. The original treaty speaks of "an ever closer union" without specifying what this should be—and that for a good reason. For the very strength of the EU lies in its flexibility, its historic ability to create new modes and patterns of cooperation, and its willingness to take the long-term view: the union was not built in a day.

It should stick to that tradition in these hard times and go with a bold move: conditional debt forgiveness for Greece, in which its debt is parked for 10 to 15 years while it restructures and returns to growth. For the harsh reality is that Greece lacks the means to generate any proper income in the immediate future and cannot even service the interest on its ever-mounting debt. Its failure has become the focus of the crisis rather than the strengths and weaknesses of the euro zone as a whole.

To avert this focus, the Greek debt would be met collectively by the whole euro zone, which would also appoint supervisors to ensure the Greek restructuring worked apace. This could reassure markets and thereby take the heat off the currency and allow work to be done with Italy, Spain, and Portugal. The move would reflect a strong stance of political will, and realism, which is what the markets, and everyone else, craves. The specific modalities could then be worked out by economists.

For ultimately, this is a political crisis with financial implications, not the other way 'round. If the problem was financial, the past two years of throwing masses of money at it would have worked, even partially. And it is the political crisis that has put the EU relationship at stake. This being the case, everyone would do well to be careful before giving up 60 years of living together. Think how it would affect the kids.