Not everyone agrees that euro’s end would finish off Europe too


On New Year’s Day almost a decade ago, cash registers and ATMs across Europe started spitting out the shiny coins and crisp notes of the world’s newest currency, the euro.

They were the most radical, tangible symbol of the long march toward reconciliation and harmony on a continent still haunted by the memories of two world wars. A single currency, proponents said, would set the seal on an era of European unity that already boasted free markets and free movement.

Now, officials are working feverishly to ensure that the currency survives a raging debt crisis that threatens its 10th birthday. And like a mantra, many repeat the stark warning issued by German Chancellor Angela Merkel: “If the euro fails, Europe fails.”


But would it?

Not if you ask Constanze Stelzenmueller. A resident of Berlin, she knows plenty of people from one European country who happily study, work and live in another. She enjoys the ease of travel around the continent without a passport. And as a lawyer, she is aware that a mass of laws and regulations now bind the region’s nations together tightly, with or without a shared currency.

“It’s impossible to turn the clock backward on the European Union,” said Stelzenmueller, an analyst with the German Marshall Fund. “We are a big tissue of integration which is not going to fall apart even if the euro does.”

All eyes are now trained on the expected conclusion Friday of a summit in Brussels that many believe could prove pivotal in the history of both the euro and the EU, whose roots go back six decades. Leaders of the 27 member states, 17 of which use the common currency, are to thrash out an agreement proposed by France and Germany that would see at least a majority of them signing up to a closer fiscal and economic union, with strict limits on government spending and borrowing to prevent future debt crises.

The two-day meeting has been described by some analysts and even one top EU official as a last-chance saloon. Without a pact, they say, on fiscal integration and aggressive action by the European Central Bank to shore up debt-racked countries such as Spain and Italy, the euro risks being trampled to death by bolting investors.

But such dire prognostications were also issued before a similar so-called make-or-break summit in October that turned out to be a disappointment.

German officials are already suggesting that a deal on establishing a fiscal union could take a few more weeks to complete. The negotiations are extremely sensitive because of the significant loss of sovereignty implied by the pact, which would require countries to submit their national budgets for review by a higher European authority.


There is some resistance to the idea of Europe being remade in Germany’s image through the emphasis on fiscal rigor. Also, smaller EU members are loath to be bossed around by the Paris-Berlin axis. And the 10 countries that do not use the euro, Britain chief among them, worry that an agreement limited to the 17 Eurozone nations would create a two-tier EU, shutting them out of important future decisions on economic policy.

Hope that the debt crisis would be definitively faced down this week was further set back Thursday when Mario Draghi, the new head of the European Central Bank, said he had no plans to step up purchases of bonds of distressed nations.

The markets had expected Draghi to unleash more of the ECB’s firepower after he hinted last week that a fiscal compact by the EU would prompt him to do so. The bank did lower a key interest rate to try to kick-start growth.

“Time is working against us,” French President Nicolas Sarkozy warned in a speech in southern France on Thursday. “Never has the risk of Europe blowing apart been so great.”

Yet even if the euro were to implode, it is far from certain that it would spell the end of the dream of European unity, as Merkel and others claim.

“Europe doesn’t fail if the euro fails,” said Giles Merritt of Friends of Europe, a Brussels-based think tank. “It would certainly be deeply humiliated, in chaos, and facing a very major crisis.”

At the same time, Merritt noted, “the great bulk of European public opinion knows that, for all its imperfections, an integrated Europe is the answer” in an age of rising powers elsewhere, such as in Asia.

Cast purely in economic terms, a sudden demise of the euro would surely wreak havoc, not just in Europe but throughout the world, which most analysts believe would probably plunge back into a deep recession.

They paint a scenario in which many banks would collapse, financial markets would go haywire, businesses would scramble to figure out if their contracts were worth anything, and countries such as China, with piles of euros in their foreign-reserve vaults, would be instantly poorer. The 17 Eurozone nations would have to fire up the presses to start printing pesetas, drachmas, escudos and lire again, resurrected currencies whose value would be hard to determine.

“There is no way to have the euro unraveling in a way that is orderly and well mannered,” said Nicolas Veron, a scholar with Bruegel, a research institute in Brussels. “In the very short term, there would be disruptive economic consequences and bad financial consequences for many Europeans.”

Those could then entail at least a temporary abandonment of some of the EU’s core principles. For example, to prevent residents and firms from frantically shipping their money to safer havens, nations might impose capital controls, undercutting the concept of free flow of people, goods and money.

Politically, recriminations would fly over who was at fault for the euro’s collapse. Veron warned against underestimating the psychological effect of the death of the EU’s most ambitious, complicated and high-profile experiment.

“There would be the sense of collective failure to achieve the aims we set ourselves,” he said.

But countries and regions can similarly rebound from catastrophes; witness Asia’s comeback after the financial crisis there in the 1990s, other analysts note.

“Let’s say in the extreme case that the euro is swept away from the corners of the Earth and you’re back to where you were in 1999. Does it mean that no countries traded with each other?” said David Marsh, a historian of the euro and co-chair of a London-based financial think tank. “There are many other things that Europe would just get on with, like education, like infrastructure, like building trade with each other, like encouraging growth.”

To imagine that the breakup of the euro would augur a return to tribalism and even armed conflict, which the EU was designed to forestall, is absurd, many analysts say. The web of connections woven by the EU — legal, commercial, social, educational — remains complex and strong.

“As for Europeans starting to shoot at one another again, I really don’t think that’s on the cards. We don’t have the conditions for it. We don’t have dictators or rival ideologies: no Hitler, no Stalin,” Merritt said. “What would they fight over? You don’t fight for territory anymore in the 21st century. You compete for markets. And that brings you back to the argument for integration.”

Europe’s single market, the original raison d’etre of the EU, would be durable enough to survive a collapse of the euro, Merritt said.

“Private industry, the big companies, made the single market, not governments. I think private companies would save the single market,” he said.

For now, the focus is on what Europe’s leaders can come up with Friday in Brussels and whether their constituents at home and the global markets find the plan convincing.

Despite the ineffectual response to the debt crisis thus far, Stelzenmueller said it was “fear-mongering” to predict the failure of the euro, let alone the failure of Europe as a whole.

A year ago, when Europe’s debt woes were already setting off alarms, scarcely anyone would have foreseen that the EU would be talking about harmonizing member nations’ fiscal policies, fixing flaws in the euro’s charter and punishing countries for profligacy. That’s the silver lining of the crisis, Stelzenmueller said.

“I think that the governments are going to do the right thing. It will not look pretty. It will look like fudging, as always,” she said. “But we’ll be in a far better place than we were.”