I'm in Athens at the moment, attending an Economist conference on "What is Shaping
the Global Agenda?" My task, in
case you're curious, was to offer an American perspective on the global foreign
policy agenda, in fifteen minutes or less. I focused on four issues: climate change, the changing
balance of power, Israel-Palestine, and global nuclear security. I may not have offered many bold new
insights, but at least I didn't exceed the time limit. And if you want to know the basic line
I took, read this.
Not surprisingly, the big topic in most of the conversations
(and many of the sessions) is the Greek financial crisis and its broader
implications. There's been a
pretty clear consensus from the people here that I've talked with (most of them
from the business community): 1) yes, there will be a bailout, 2) it will
probably work; 3) Greece's situation is mostly of its own doing (poor
investment choices, ineffective tax system, padded public budgets, fatal
combination of persistent deficits and falling competitiveness, etc.) and 4) the
whole mess raises big questions about the EU.
I am hardly an expert on financial
markets (though like a lot of other Americans, I've gotten more interested
in them since 2008!) so I have no great wisdom to impart on the origins of
Greece's troubles or the specific nature of the rescue package that is now
being assembled. But it seems to
me that this crisis is a serious body blow to the European Union itself. The EU can point to plenty of successes
over the years, but the combination of continued expansion and the creation of
a common currency back in 1995 now looks like an exercise in hubris.
The central problem, as plenty of people pointed out,
is that EU didn't create the right institutional machinery when it created a unified currency. Once states give
up their own currencies, they can't deal with financial or fiscal crises by
devaluation. With that
flexibility lost, the EU needed far more centralized economic authority (e.g.,
a true European central bank and a centralized European tax system) to make things
work properly. As
one banker told me here, it would be no problem if Europe were really
one country and Greece was just a poorer province. But Europe's member
states refuse to give up those powers, and so the stability of the
euro rested on the naive assumption that all the member states would
rules and stay within certain fiscal targets. This was like assuming that it would never rain, or that at
least everyone would always be carrying their own umbrella. Or as one European academic recently put it: European
monetary union was "not ready for bad weather."
Indeed, as Steven Erlanger points out here, it's been a
pretty tough couple of years for the EU.
It didn't cover itself with glory in response to the 2008 recession, and
the EU had no mechanism for dealing the volcanic eruption in Iceland that
snarled air traffic all over Europe.
Instead, what we got was a confused array of poorly-coordinated national
policies. And then Greece had to
turn to the IMF rather than its European partners to arrange a proper
Among other things, these events cast further doubt on the
possibility that Europe will ever speak with one voice on foreign policy. By creating a president of the European
Council and a High Representative for the Union of Foreign Affairs and Security
Policy, the Lisbon Treaty of 2007 was supposed to be a step in that
direction. In reality, however,
foreign policy (including economic policy) remains primarily the
prerogative of national leaders, with all the potential for division and delay
that this implies.
There are in theory two ways that the EU could go in
response to these events. One possibility is that these recent failures will eventually prompt a
further expansion of all-European institutions. This view is the modern version of old-style functionalism: if Europe needs certain institutions to work properly,
it will eventually create them.
The second possibility-which I'd deem more likely -- is that we
have in fact seen the high-water mark of the EU project. Nationalism is still alive and well in
Europe, the Cold War is over and there is thus less need for unity against an
external threat, Germany is gradually shedding its post-World War II reticence, and the
consequences of over-expansion and excessive ambition have been fully exposed. I'm not saying the Union is headed for
the dust-heap of history or anything like that (no bureaucracy goes out of
business that quickly, especially when there are thousands of pages of laws
involved), but a significant consolidation of power in the near future seems most unlikely.
Given that the EU Union has been one of the
more interesting political experiments in recent decades, this is going to be
fascinating to watch. Time for IR theorists to place their bets?
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