What the EU’s Issue REALLY Is

by Nigel Bolton-Shaw on August 24, 2012

Showdowns that will define Europe’s future  … A series of multi-billion-Euro bail-outs – and more to come – have now planted a north-south political divide at the heart of the European project. Taxpayers in Europe’s north resent underwriting their southern neighbours, while voters in the south are equally frustrated at having austerity imposed upon them from abroad. As has been noted repeatedly, this is the greatest tragedy of this crisis: a project that was meant to bring people together, now risks driving them further apart. – UK Telegraph

This story, excerpted above from the Telegraph, is a good one because it goes through the hot points in Europe and analyzes how they may affect of the durability of both the EU and Euro.

According to the Telegraph, there are five key areas of conflict that must be resolved successfully. We’ll examine them and then try to determine for ourselves what are the practical outcomes and consequences …

Greece v Germany: The problem here as the article points out is that if Greece continues down the path of Euro-austerity, it risks alienating its own citizens who already have “austerity fatigue.” If Greece’s leaders ultimately reject the imposed austerity, then Germany in particular will begin to draw away from its commitments. The Germans really do see the Greeks as spendthrift and many would like to oust the Greeks from the EU – or alternatively leave themselves.

Spain v the North: Unlike Greece, there is no question that the EU can provide the funds necessary to make Spain fully solvent. But the larger question then becomes what is Spain allowed to do to survive within the EU and how will that be seen by others struggling with their own problems. The way Spanish problems are handled could actually exacerbate difficulties elsewhere, at least when it comes to perception.

The bail-out funds v national democracy: In early September, Germany’s constitutional court will render a verdict on whether Angela Merkel’s commitment of Germany to the European bail-out fund – the European Stability Mechanism (ESM) – is legal. The problem is that Germans were sold on the idea of the EU so long as the Germans would not have to pay for other countries’ insolvency. Now that’s just what is happening. The court will surely rule the fund is legal, but that won’t make it any easier to tolerate.

The Dutch v Europe: The Dutch are flying under the proverbial radar, but that doesn’t mean they’re not about to make some noise. The Dutch are about to hold national elections and anti-EU pol Geert Wilders could pick up considerable support. Unusually, from the left, a similar challenge has been unveiled. The Dutch socialists want a referendum on bailout deals.

Germany v France: A European “road map” is in the works that should result in a closer union. But France and Germany, the EU’s main engines, have different views on what this entails. German pols are focused on exercising political control over various bailouts. France is focused on getting the bailouts in place. This is leading to significant tensions.

The article is written from a British point of view and not surprisingly, the article’s summation deals with these issues from Britain’s perspective. The main takeaway point seems to be that British officials should do what they can to protect Britain from both the unpredictable effects of euro-chaos and also from confrontations with Europe resulting from further integration.

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From the standpoint of outsiders, however, the issues regarding European solvency and integration are different than this. It is simply a shame that something that was supposed to provide prosperity has ended up providing virtual bankruptcy instead.

From an investment standpoint it is no doubt tempting to look for a European “bottom.” But it is safe to say that even this list of five flash points for the EU only covers some near term difficulties. The bigger difficulties have to do with the severity of the current downturn and the difficulty that the EU’s top leaders are having in balancing the needs of the Southern PIGS with the solvent North.

It was thought long ago by EU leaders that a financial crisis would precipitate a political union. But increasingly it looks to be driving participants apart rather than together. Taken in aggregate, the way that Europe resolves these five issues, above, will tell us a good deal about the EU’s larger determination to survive …  and whether participants are actually still able to resolve ever-larger differences.

This is the ultimate issue. It is one of the EU versus itself, and must be brought to a successful conclusion before any of the rest can be entirely solved.


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