European Crisis Rooted in Identity
by Zach Smith | University of Nebraska
If you’ve read the news recently, you might have heard a couple things about our European friends across the Atlantic. First, a lot of them are in debt. Second, they seem to hate bailouts just as much as we do. And third, the euro–which just a few years ago was so much stronger than the dollar–is now in danger of falling apart.
How can this be? Europe has a few great economies: France, Germany, and all of Scandinavia survived the Great Recession quite well. Germany is actually being asked to bankroll much of those evil bailouts, which even it can’t do forever.
But Europe also has a lot of really bad economies and countries which made incredibly poor governing decisions. Greece has a sprawling public sector whose pensions and salaries ate up all government revenue and then some. Ireland and Portugal crashed. Spain had a housing crisis on par with the United States’, if not worse. And Italy is just plain weird–it actually takes in enough revenue to pay its services, but not enough to pay the interest on its debt.
Now, ordinarily, this wouldn’t be that big of a deal. Spain, Italy, Portugal, Ireland, and Greece would just figure out a good economic policy–fiscal and monetary–to fix their own individual problems. It would be painful, but each country could deal with the pain on its own–and suffer the consequences if it couldn’t.
But Europe is complicated. The European Union links countries together in sometimes binding treaties, but more importantly in the common currency of the euro, which unites seventeen of the countries together under one common monetary policy. I say “sometimes” binding treaties because the EU had rules that were supposed to prevent this crisis–ceilings on annual deficits and so on–that countries just ignored.
So now, all those unique problems for each country, and the not-so-problematic economies of France and Germany and Belgium and the Netherlands and all the rest, are lumped under one central bank. And that’s fine. Or, it would be, if the EU functioned like the United States of Europe.
Let me clarify that. The United States has one common currency between fifty states, plus a few territories. We’re not what you’d call an “optimal currency zone.” The population isn’t evenly distributed, the states aren’t all that contiguous, and each has different policies. The dollar shouldn’t work–we should be facing the same problems Europe is. But we’re not.
That’s because the United States has a strong federal government which takes money from some states to give to others. We also have common federal labor laws that make it so it’s relatively easy, if the job market sucks in one area, to go work in a completely different state. States don’t deal with larger economic problems–Nevada can’t fix its housing crisis on its own, for instance. Our system compensates for the flaws geography has given us.
Europe’s doesn’t. That’s why Europe is crashing. There’s some labor market integration, sure, but national identity is still very strong. Individual countries are still responsible for setting economic policy, but they have no control over their currency. And so when one country goes into crisis–let alone five–everybody starts to sink.
Europeans have tried to fix all of this. There’s a new treaty out that contains some promising starts. This crisis could have gone one of two ways: the Euro could have broken up, a disastrous outcome for the global economy (if you thought 2008 was bad, try a major currency failing), or Europe could start to integrate individual countries much further into EU institutions.
Every country except, to an extent, Britain, chose option two. The British aren’t a member of the eurozone and have special exceptions to many treaties. The rest of Europe decided to subject individual budgets, if in significant deficit, to the chopping block of the European Commission. Countries in deficit would submit reduction plans to the Commission for approval.
If implemented successfully, these plans might actually work. Individual countries are giving up more sovereignty than at any time in the past. Europe is once again on the path to significant integration. But that path is fraught with danger; Europeans don’t have common identities or common cultures truly shared between all 27 countries in the EU. Without developing a Euro-centric identity, political integration can only go so far.
In the United States, I’m an American before I’m a Nebraskan or Wisconsinite. In Europe, Germans are Germans first, Europeans second. And so, for a long-term solution to today’s crisis, Europeans have to change their identities as much as they have to change their budgets.Zach Smith is a NGJ Voices Contributor and a MSc candidate in Middle East Politics at the School of Oriental and African Studies, University of London. In summer and fall 2010 and summer 2012, Zach studied Arabic and international relations in Amman, Jordan. He is a 2012 Marshall Scholar.