But more importantly to me, however pro-EU I am, as noted above I have to admit that I am becoming more and more dubious about the very notion of an EU polity that transcends national divisions. It seems to me that the distinctions between nations within the EU is so great as to predicate against the sort of polity that exists within the US [the admission that Sarkozy bet the house on assisting Greek by threatening to withdraw from the euro, however dramatic, however sincere or otherwise, simply points up the reality of that – it is all but inconcievable that within any truly federal structure that such a threat would be countenanced or made. The necessity simply wouldn’t arise due to many many different factors but most importantly that the structures would be profoundly different in and of themselves…]. And let’s not dismiss the fact that the US works hard, very very hard – even given the suspicion that is [often] directed against the state within that society – in order to generate that polity. The EU by contrast has avoided such efforts – perhaps naturally, perhaps not.
Former German Chancellor Helmut Kohl, seeing the euro as the capstone of Europe’s economic integration and Germany’s return to the European family after two world wars, opened the door to the deficit-prone southern European countries that the Bundesbank, haunted by the memory of hyper-inflation, wanted to keep out.
Returning from the December 1991 summit in Maastricht, the Netherlands, that kicked off the euro project, Kohl told the German parliament that he wanted “the greatest possible number of countries” in the euro. That gave Italy, Spain and Portugal the encouragement to meet the economic targets to join in 1999 and Greece to follow two years later.
Defenders of the German economic model knew the threat posed by countries such as Italy, whose budget deficit was 10.2 percent of gross domestic product in 1991, when they forced European leaders to set 3 percent as the limit for euro members.
“A well-known German financial leader told me: Fortunately for Germany, Austria is between Italy and Germany,” said Alfons Verplaetse, who oversaw the Belgian central bank from 1989 to 1999. The reckoning was that only Germany and its immediate neighbors would pass the economic tests, limiting the euro to a handful of countries, Verplaetse, 80, said.
Today’s euro is far from what economists like Nobel laureate Robert Mundell call an “optimum currency area.” Gross domestic product per person ranges from 69,300 euros in Luxembourg to 18,100 euros in Slovakia, debt from 14.5 percent of GDP in Luxembourg to 115.8 percent in Italy, and unemployment from 4.1 percent in the Netherlands to 19.1 percent in Spain.
“A currency without a state is difficult to manage,” said former Italian Prime Minister Lamberto Dini, 79, who also served as the nation’s finance and foreign minister. “The decision to create a single currency in Europe was an eminently political decision. It was supposed to bring about greater European integration not only at an economic level, but at a political one.”
Europe’s multi-state structure leaves it without a U.S.- style federal tax and financial-transfer system to smooth discrepancies between richer and poorer regions. The EU’s budget, mostly for farm aid and infrastructure projects, represents barely 1 percent of the bloc’s GDP, compared with European national budgets that average 47 percent of GDP.
Signs of a mismatch between strong and weak economies and a loose coordination of fiscal policies were noticeable in the earliest blueprint for a common currency.
“In view of the marked divergences that persist between member states in realizing the goal of growth and stability, there is a risk of surging disequilibriums unless economic policy can be harmonized,” Luxembourg Prime Minister Pierre Werner wrote in the 1970 report that introduced Europe’s first bid for a single money.
Four decades later, Werner’s prophecies are coming true, as euro-region governments prioritize domestic needs to pacify voters after the deepest recession in a half century. The EU Commission estimated May 5 that the overall economy will grow 0.9 percent in 2010, not enough to create jobs, after shrinking 4.1 percent in 2009. It predicts unemployment will climb to 10.3 percent in 2010 from 9.4 percent in 2009.