Europe's debt crisis continues to spread -- Greece and Ireland have already had to seek shelter from the European Union and the International Monetary Fund, while bond spreads in Portugal and Spain are giving strong indication they might meet the same fate in the not-too-distant future. And as the crisis develops, far from sending a much-needed signal of confidence and self-assurance, the rhetorical register we're seeing from Europe's leaders is becoming increasingly nerve-racked and even at times apocalyptic. In a typically troubling example, European Council President Herman Van Rompuy warned recently that the eurozone, and even the European Union itself, were in the process of fighting for their lives, telling the astonished audience at a Brussels think-tank conference, "We're in a survival crisis."
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Only a few days later, another top EU official, European Competition Commissioner Joaquín Almunia, stunned market observers with a statement that was widely interpreted as suggesting there might be something behind the rumors that Spain's banking and government debt statistics were not as reliable as they should be. "There are no doubts that there is doubt [about Spain]," he said in an interview with a Spanish radio station, doubts that are connected with the possibility that Spain could "have something more than what it has already put on the table."
Then, Olli Rehn, the European Union's commissioner for economic and monetary affairs, tactlessly chose a day of extreme market tension to tell the world that in his considered opinion, the Spanish government was in danger of not complying with its 2011 deficit target of 6 percent. The result was predictable, and the next day yields on both Spanish and Italian bonds hit euro-era highs. The situation was brought under control only thanks to substantial intervention on the part of the European Central Bank (ECB), as well as bank President Jean-Claude Trichet's promise of a major change in policy at the next meeting. As American economist Barry Eichengreen recently put it: "You can say one thing for the European Commission, the ECB and the German government: they never miss an opportunity to make things worse."
Far from serving as a call to arms, comments like these, especially at such a sensitive moment in the latest round of the crisis, merely leave the people who make them looking ridiculous and trivialize the institutions they represent. The European Union itself is not in any kind of survival crisis. Indeed, the risk that the union will actually break up is so small as to be virtually nonexistent -- and even though doubts remain about the long-term survival of the euro in its present form, this is not the immediate problem. The only meaningful way to ensure that the common currency survives in the long run is to find ways to adequately resolve Europe's present problems. Wandering from the script, as Van Rompuy is wont to do, simply doesn't help.
The problem Europe faces, as seen by the markets, is that it has half-emerged from one economic crisis only to be engulfed by another: the challenge of maintaining under reformed pension and health-care systems in the face of the most rapid population aging in human history, with very sharp increases in the elderly dependency ratio looming over the next 10 years. Add to this challenge the doubts about who is actually going to be responsible for whom: Will Irish citizens pay through taxes the losses incurred by Irish banks in the property bubble, or will the German government recapitalize the German banks that were irresponsible enough to lend the Irish the money to have the bubble in the first place? And at the heart of this sovereign-debt crisis is another tricky question: Whose sovereign goes with whose debt?
We are now into the third wave of the present crisis. The first tremors were effectively noticed around the turn of the year, when Abu Dhabi announced it was not going to take responsibility for all the excesses of its poorer but more reckless neighbor, Dubai. This news turned all eyes toward Greece and the issue of who was going to foot the bill for all that under-the-table deficit spending that had been going on since the euro was introduced.
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