With threat of euro collapse, remember what European integration has achieved

Every news source over the last few weeks has published articles on the Irish bailout and the eminent demise of the euro. For the first time, I am also becoming skeptical that the single currency will weather the next few years.

It was the Greeks in May, the Irish now, and Portugal and Spain in the near future that have/will require an EU-IMF bailout. This year has been an “I told you so” moment for many economists, a lot of whom are American.

For those not familiar with the issue, the crux of the problem lies in the PIIGS (Portugal, Ireland, Italy, Greece, Spain) inability to devalue their currency (see Paul Krugman’s article) Devaluation is a practice that the U.S., UK and what China has effectively been doing for over a decade, engage in to make their exports more competitive. If New Jersey had its own currency, say the Lire (to serve stereotypes) it could devalue the Lire relative to other state currencies instead of enacting the tough budget cuts that it is currently imposing. The PIIGS must implement even tougher austerity measures to cut their debt and save the euro.

Austerity is a problem form both an economic and political standpoint. Cutting spending when it is needed the most (to spur the growth needed to climb out of the crisis) can lead to a downward spiral of no growth or contraction that will eventually result in countries defaulting on their debt. This is something many economists are predicting will happen in Europe. Politically, this will cause many politicians to question the value of the Euro as the public protests budget slashing, as seen in Greece.

Fiscal union could save the euro. Supranational control over member states’ budgets would allow the EU to function like the U.S. Greece and Portugal would become as much of a threat to the euro as New Jersey is to the dollar. This will not happen. Germany is terrified of its wealth being transferred to these fiscally “irresponsible” states and the fire that drove integration up to this point has fizzled out with Euroskeptics becoming increasingly powerful domestically and in the European Parliament.

The end of the euro will come with a series of protests: Protests against austerity measures in the PIIGS and German protests against taxpayer money saving the PIIGS from default.  

What implications will this have for the EU? I can only hope the integration project will not unravel and in this time of crisis it is important to remember all the EU has accomplished.

All the benefits of the single market aside, let’s not forget the original purpose of the European Coal and Steel Community (ECSC), the predecessor of the EU. The ECSC, formally established in 1951 by the Treaty of Paris, created a common market for coal and steel, the two main resources needed to conduct war. France, Germany, Italy, Belgium, Luxembourg and the Netherlands were all party to the treaty. A supranational institution, the High Authority, was created to oversee the market. With the means to make war under the control of the ECSC’s High Authority, war between the six states became impossible.

My generation takes this for granted. We have the luxury of being born after wars tore apart Europe, and as all living veterans slowly pass on, so does the first hand memory of the horror that was World War II.

However, out of this horror sprung something truly remarkable in the ECSC. Like WWII this is a historical precedent that we must not forget. The ECSC took two countries that had a primordial hatred, a continent that was ripping itself apart through brutal wars of the likes the world had never seen, and brought them so close that in less than 50 years war in Western Europe was and is unimaginable.

I find this feat of peace to be a more important lesson than the devastation of world war.

I look to the EU as a microcosm for what world governance could eventually look like; I do not think this is some sort of utopian dream. The close relationship that is now shared between Germany and France can only be compared to a union in 50 years between India and Pakistan, or Iraq and Iran. Although there were a unique set of circumstances that allowed for the formation of the ECSC, that are not present in these hypothetical examples, the history of war between European states is often overlooked, and the ECSC is short changed in the history books.

The EU has reached the limits of integration and adopting a single currency before fiscal union has been a mistake. Like WWII and the ECSC, the single currency now serves as a lesson as the world inevitably becomes more integrated and competencies that were once at the state level creep upward into institutions like the WTO and the UN. I believe that future generations (not near future) will look back on the WTO and conclude that it was world economic integration that eradicated interstate war, just like the ECSC did for Europe. European integration is a political experiment and just because it was too bold and may fail in establishing a single currency in no way means it is a failure.

What is the future of the EU if the euro collapses? I don’t have the answer and the future of the Union is more uncertain than it ever was. But let’s stop for a minute, put the bickering about the future aside, and remember that it could be worse. The French and Germans could still be killing each other.