The failure of EU finance ministers to enforce the rules underpinning the single European currency points toward serious long-term consequences. That both France and Germany, the two biggest economies in the euro zone, should escape punishment for their failure to stick to the solemn and binding rules they themselves insisted on when the foundations for the euro were being laid is bad enough. That they should also be allowed to persist with financial policies that fly in the face of the rules for the euro some see as little short of a scandal.
The European Central Bank and the EU commissioners are all in despair. This political fix by the finance ministers not only endangers the credibility of the euro as a major world currency, it brings into question the emergence of the EU as a potent unified political and financial force in world affairs.
The EU hopes shortly to be agreeing its first proper constitution, which is supposed to allow it to become more manageable when, with the accession of eastern European countries, it expands from 15 to 25 members. What will be the worth of any of the signatures to that document now that two leading EU countries have demonstrated that they are happy to ignore their treaty commitments when it suits them?
For the euro zone, the message to smaller and weaker member economies is clear. If they too are feeling the political pressure of implementing the fiscal discipline, they can cite the behavior of France and Germany and also break the rules. This could damage the euro in the world’s financial markets given that the value of any currency depends as much on confidence as on underlying economic data.
The effects will also reach beyond the euro zone economies. The more Europe fails to present a credible counterbalance, both economic and political, to the dominance of the United States, the more Washington will be able to force purely its own agenda on the world. The Japanese are trapped in a dusty cobweb of economic stagnation, the Chinese have not created the stability to match their meteoric growth, and Russia faces too many problems to assert any convincing leadership.
Only the Europeans had the potential to challenge the myopic US world vision and partner Washington into wiser and less confrontational policies. What price a united European voice now, when its own crucial internal rules can be bent to suit those who break them? Who is going to believe Brussels’ vision of a uniting Europe when all the evidence is that any of its members, even the most senior, can flaunt its rules? EU policy toward the Middle East has generally been more thoughtful and informed than Washington’s. The failure to address the euro’s problems will weaken what many hoped would be a steadying influence on America.
