The Europe Union (EU) will survive its current debt crisis only if northern and southern nations overcome the vast social and political divisions between them.
That was the consensus of two international economic experts who discussed the issue on Oct. 18 with David Gautschi, Ph.D., dean of the Graduate School of Business Administration (GBA).
Jonathan Story, Ph.D., emeritus professor of International Political Economy at INSEAD; and Dominique Moisi, senior adviser for the French Institute for International Relations; spoke at the GBA Wall Street Council’s inaugural event.
They agreed that the crisis, which has seen Greece, Spain and Italy teeter on the brink of bankruptcy, is the result of EU leaders’ inability to reconcile a unified monetary policy with a fragmented political system.
“We have 17 national states, tightly integrated one with another, but with separate fiscal systems, separate political systems and very different levels of growth of productivity,” Story said. “The heart of this problem is that Northern Europe has actually, with the Euro, distanced itself from the performance of Southern Europe.”
Portugal, Spain and Greece, he noted, have made remarkable progress since emerging from dictatorship in 1974. Even Ireland, in spite of its recent difficulties, has come a long way since 1973, when it was the poorest country in Europe.
But a chasm remains between the economies of these countries and those of stronger nations such as Germany and the Netherlands.
Moisi commented that the notion of a sovereign debt crisis was a misnomer, because although there is debt, there is no sovereignty.
“One could say that the American debt crisis is objectively more severe that the European debt crisis, except America exists as a singular entity, and Europe might not exist in that same way,” he said.
“For example, confronted with a crisis, a Californian, a Texan and a New Yorker feel that they are all Americans. Confronted with the same crisis, I’m not sure Europeans feel that they are part of a singular group.”
In contrast to people in France who declared, “We are all Americans,” after the 9/11 terrorist attacks, Moisi said there is little sympathy in Nordic countries for the Greeks and Italians.
“The Greeks left the hot water running in the tub and went on vacation,” he said. “The foundations of the European house are being destroyed by this action.”
Some of the intransigence may be a product of European leaders’ lack of memory of World War II. There is no longer a feeling, he said, that Germany needs to build up the rest of Europe partly to protect it from itself.
“In a recent poll that asked the question, ‘What is the country that makes you dream?’ 70 percent of Germans answered Switzerland. Why? Because it’s prosperous, it’s peaceful, and—I would say—it’s largely irrelevant,” Moisi said.
“That is that dream of neutrality—the dream of coming out of history after having been too much at the center of history in the most tragic manner.”
But like the United States Constitution, the EU’s articles of confederation do not have provisions to dissolve the union or expel a particular country.
Even if it were possible, Story said, leaving would be too painful for even a strong nation like Germany. An exit from the Euro could cause its currency to soar, making its products too expensive for the very countries it is being asked to bail out.
“It’s important to note that Ireland, which has a fully legitimate government, has been a very serious country. It’s given education its top priority, has been open to multinationals, has had a political culture that fosters low-tax, moderate government, and is already turning around,” he said. “Ireland is the model against which we should rank the response of the Latin countries.”
Moisi said that the impetus for a unified Europe has always been a negative one; EU leaders imagined the common currency as a salve that would forever banish the wars that tore the continent asunder in the 20th century.
“In America, the idea of managing decline is not widely accepted, whereas in Europe, people are relishing the decline,” Moisi said. “They say, ‘That’s great; we’re no longer at the heart of history. We were too much at the center of a storm.’ So that’s the difficulty. How do you create a new narrative?”
The event, “Discussion on European Debt Crisis and Implication for Capital Markets,” took place at the New York Athletic Club.
The Wall Street Council was formed at the beginning of the year to foster collaboration among GBA students, faculty members, staff, alumni and friends interested in the capital markets. It boasts 200 members.