The problem with a small Europe

NEWS headlines notwithstanding, the fundamental challenge facing Europe today extends far beyond Greece. The real question is what kind of European Union (EU) Greece's creditors want: a "small" one, comprising only the countries that are prepared to live by their exacting standards, or a "big" one that heeds the Treaty of Rome's call for "ever-closer union".

The German leader Otto von Bismarck confronted a similar dilemma when he presided over German unification in the 19th century. Best remembered for his commitment to realpolitik (the view, as Lord Palmerston put it, that "nations have no permanent friends or allies, they only have permanent interests"), Bismarck had to address whether unified Germany should be big or small - with or without Austria, and led jointly or by Prussia alone. It took two wars, against Austria and France, for the "small Germany" solution to prevail.

Some blame Bismarck for Germany's slide towards fascism in the 20th century. That is a stretch. What he did do was demonstrate how to use crises to force his preferred outcome - a practice that the leaders of Europe's creditor countries seem to be emulating today. Indeed, in pushing for a small Europe, they have asserted, using the sober rhetoric of realpolitik, that Europe's integration path is necessarily shaped by the crises that arise along the way.

The premature establishment of a currency union, without the needed political integration, generated tension and instability as it failed to take into account the vast differences in member states' economic structure and performance.

For Europe's creditor countries, like Bismarck in the 19th century, crises are an acceptable price to pay for a more stable future. They seem not to recognise that, with their current approach, they will also end up sacrificing the EU's fundamental principles.

European integration was built on the ideal of a united Europe working together to uphold peace, generate prosperity and advance democracy. At first, cooperation centred on the creation of a common market, with European technocrats, led by the European Commission's then-president Jacques Delors, pushing for a common currency despite deep structural differences. The assumption was that political integration would follow.

That did not happen. Indeed, the approach was tantamount to putting the cart before the horse -with serious consequences, exemplified in the euro zone's enduring crisis. Yet the technocrats are back, now advocating a fiscal union to support the monetary union, with political union nowhere in sight.

Perhaps European leaders still believe that the needed political integration will eventually occur. But even in the unlikely event that it does, a political union that emerges from desperation to save the common currency will be very different from one built purposefully, as the Treaty of Rome envisioned, based on shared values and goals. And, in the meantime, a fiscal union without a political union is an anti-democratic nightmare.

The problem is that, instead of working together to build a shared future, Europe's debtors and creditors have turned on one another. Negotiations on Greece's ongoing crisis look more like they are being conducted by the United States and Argentina - countries that are not at war, but that have few ties and no common future - than by EU members who claim an enduring solidarity. Both sides conduct cost-benefit analyses based exclusively on their own interests, with no attempt to articulate what the crisis means for Europe's shared future.

Rather than continuing to advance their own preferred scenarios, EU members - creditors and debtors alike - should seize the opportunity afforded by the Greek crisis to assess whether the integration process is on the right track. If they do, they will most likely conclude that it is not.

The premature establishment of a currency union, without the needed political integration, generated tension and instability as it failed to take into account the vast differences in member states' economic structure and performance. Member countries were effectively divided into "good" and "bad", with the latter forced to implement austerity programmes that have made their economic recovery - and thus their convergence with the "good" countries - all but impossible.

In this context, it is perhaps understandable that the creditor countries are increasingly promoting a "small" EU that includes only those that are willing and able to meet their high standards. But while this might make for a stronger euro - and even a stronger EU - it would carry a huge cost, as it would effectively force members to abandon their democratic ideals.

Meanwhile, the excluded countries would be forced to engage in competitive currency devaluations and other beggar-thy-neighbour policies. The dream of shared prosperity in Europe would be dead.

This outcome is not inevitable. A common currency is a means to an end, not an end in itself. If European monetary union is not leading towards the desired end, it - not the goal of ever-closer union - should be altered. And, in fact, most Europeans favour a different means, based on greater flexibility for domestic preferences and a bottom-up approach towards further integration.

In such an environment, Greece might not only survive, but also thrive.

The writer is a Professor of Law at Columbia Law School.

A version of this article appeared in the print edition of The Straits Times on June 25, 2015, with the headline 'The problem with a small Europe'. Print Edition | Subscribe