The 1992 Maastricht Treaty that created the euro zone may have been drily economic in its particulars, but the unspoken subtext was always unmistakably political: Europeans had to unite, if only because continued disunity, or even a loose free-trade zone, would keep them at the edge of the abyss. Two world wars, and scores of millions dead, were the ghosts in the monetary union's machine.
To put it more bluntly, everyone else (especially the French, the original architects of the European Union) wanted to be protected from the Germans, and even the Germans wanted to be protected from themselves, as then-Chancellor Helmut Kohl used to suggest publicly. The German decision to support the European Monetary Union was also a quid pro quo with the French for allowing German reunification: If you allow us Germans to be powerful again, we will hitch our future permanently and peacefully to a larger Europe. Kohl, who became one of the euro's most important champions, was strikingly blunt about this. The question of a monetary union, he said repeatedly in the 1990s, was one of "war or peace."
So while, economically, the monetary union was a direct descendent of the seminal Coal and Steel Community of 1950 and the European Common Market that followed, it was also conceived as a political Rubicon. EMU permanently and inextricably bound together nations that had once torn each other apart. It was a club you could join but not quit, and that was always intentional. The designers of Maastricht deliberately avoided an escape clause, thereby drawing a determined line under the awful past. The Germans hated losing their beloved deutsche mark, which they viewed as their anchor of stability; but to defend it would have summoned up the ghosts of nationalism. It is for these same reasons that German misgivings about the European Monetary Union, at a new height today, remain muted.
Although they are not members of the World War II generation of Kohl and then-French President Francois Mitterrand, today's leading European leaders still embrace that history. As a senior French official puts it, launching the euro zone was largely about creating a permanent peace between France and Germany: "These are two countries that have been fighting since the Napoleonic wars, or even longer. It's not necessarily that you need to contain Germany. The demographics are such that in 20 years, France may be the larger country. It's that you need to keep the links between Germany and France."
"Failure of the euro zone is not an option," a senior diplomat from one of the stronger northern countries told National Journal this week. "The price for preventing that is high and will become even higher, but the euro zone will neither explode nor implode." He added, however, that after the euro zone creates new rules, "what I can potentially envisage is repeat offenders of the rules, like Greece, being forced out of the euro zone. Greece is pretty much bankrupt right now, and a restructuring of its debt is inevitable. Stronger euro zone countries like Germany and the Netherlands will want to see a firewall around this in order to avoid any contagion."
Yet that may not be possible. "The one thing that isn't possible is that it's just Greece that goes out," says Princeton's James. "There is a series of dominoes that leads from Greece through Portugal, then to Spain and Italy. And after Italy, there is actually France.... Some make the case that Greece is insolvent, but others are just illiquid. Yet, in a crisis, that's hard to see. The moment credit costs go up for Italy, it actually becomes a self-fulfilling prophecy. They're going to bail out Greece, because they don't want [market] signals coming from Greece. Then they're going to have a bigger [problem country], which they may not have the resources to bail out."
Meanwhile, centrifugal political forces continue to pull things apart. Among those forces: rioting against austerity measures in Greece; the recalcitrance of the corrupt Berlusconi government in Italy; and right-wing backlashes in some Northern European countries.
But for European statesmen, it is a point of pride that after millennia of strife they see themselves as achieving, in a way, their own End of History. They have restored geopolitical heft to a continent that became a slaughterhouse, then an economic disaster, and finally a protectorate of the U.S. Viewed historically, the European Monetary Union was an amazing breakthrough. Through all the pageantry of history, no single regime had ever united Europe. The Romans, after taking Gaul, found themselves stalled at the Rhine. The Ottoman Turks reached only as far as the Balkans, bequeathing to us the tortured ethnic divide of Bosnia. The Habsburgs, with their diaphanous Holy Roman Empire, fell miserably short as well. Unification occurred only after World War II, when bureaucrats like Jean Monnet and Robert Schuman finally achieved peacefully what Charlemagne, Napoleon, and Hitler failed to achieve violently.
All of this old history backs up the new history being made today in Brussels, Berlin, and Paris. Hence the still-unresolved dilemma at the heart of the euro crisis: Economically, the euro zone probably should fail, but politically Europeans can't allow that to happen. It may be a long time before a pan-European fiscal policy exists, but political leaders are clearly contemplating it now. At the moment, though, there isn't any credible enforcing mechanism to stop governments from running up big budget deficits and national debt. But that too is becoming a priority: Schaüble and other leading technocrats now say that "a second Maastricht" must include a new an enforcement provision. There is also talk of a "European IMF," a euro-zone version of the International Monetary Fund that would be able to force fiscal discipline on member countries in exchange for emergency help when they get into trouble.
Those solutions will take time. In the interim, ad hoc facilities like the emergency fund will have to be built up as necessary and take their signals from the markets. "The creators of the euro were like parents fixing an arranged marriage," Auerback says. "They knew that they were locking together countries with very different economies and political cultures. But they hoped that, over time, the new partners would grow together and form a genuine union."
The holdouts, such as Axel Weber, now tend to be on the outside looking in. "I'm quite worried about the current debate," he said at another IMF forum on Sept. 25. Weber argued that it was absurd to talk about fiscal unity right now, "throwing any conditionality out the window," before authorities pressure governments to get themselves out of debt. "The whole debate about a euro bond is totally misleading," he continued. "It takes attention away from the action that needs to be taken."
It's true that some contingency plans being discussed in backrooms call for a rump euro zone that includes only the stronger northern countries and possibly France. "I call it the Wallenstein euro," says Stefan Goetz Richter, founder of The Globalist newsletter, referring to the Bohemian general who conquered many northern lands during the Thirty Years' War. "Ninety percent of creditable assets in Europe are behind that line, like Sweden, Denmark, Germany, Austria.... If nobody buys Italian bonds anymore, the markets may force the breakup of the euro. It is now a notion that is openly discussed." Another outside possibility: two bands of euros, one northern and one southern.
Yet in the end, all of these scenarios are very unlikely, not least because every European minister fears the market domino effect. European indecisiveness and fractiousness is often the object of ridicule in American politics, giving rise to the famous plaint attributed to Henry Kissinger: "When I want to talk to Europe, who do I call?" (Of course, many Europeans now complain that the dysfunction on this side of the pond is almost equivalent. "When we want to know what the U.S. plan is for the economy, who do we call?" one European economist said recently.) But every European leader is grounded in his or her own history, and the euro crisis has reawakened an existential angst that no one can afford to dismiss. The best bet is that the Europeans will head off a new existential crisis. After all, Europe isn't just a continent of dithering bureaucrats and politicians, or of failed conquerors. It is also the continent of Bismarck, Descartes, Einstein--and Galileo.