Share this article

print logo

Europe on brink as dream of unity may be unraveling; Unrest in fiscal crisis threatens EU's future

The European Union, a hope for peace that rose from the fires of World War II, paused Wednesday to honor its past and ponder its future -- and how it can ensure that it still has one in light of the anti-austerity anger expressed this week by voters in France and Greece.

Wednesday was Europe Day, a commemoration of a key event that led to the creation of the modern EU. It was on May 9, 1950, that French Foreign Minister Robert Schuman issued a declaration calling for an integrated Europe.

Tens of millions of Europeans had perished in twin cataclysms of World Wars I and II. At root, Schuman's dream was simple: He wanted an economic union, a sharing of strategic resources in Europe that would "make war not only unthinkable but materially impossible."

By that measure, the project has been a resounding success. The EU has grown to 27 members, and the economic union has grown ever deeper, including a common market and, for 17 countries, a shared currency. The interlocking interests have helped to shield the bloc from any possibility of war.

Sunday, however, voters in France and Greece went to the polls in droves to cast their ballots against the strategy of harsh budget cuts that leaders contend is necessary to preserve the economic union that is at the heart of the EU.

The question then arises: Is the European dream in danger? Could it all come unstuck?

"The current situation is extremely fragile and extremely dangerous," said Zsolt Darvas, a research fellow at Bruegel, a Brussels-based think tank.

Greece's two major parties, both of which backed a drastic package of budget cuts in order to secure a desperately needed bailout loan, were so thumped by voters that, even put together, they would not command a majority in Parliament.

That's alarming because it raises the prospect of protracted political paralysis, in which market panic could trigger a Greek financial meltdown and possibly force the country out of the currency union. That would endanger the viability of the entire European unity framework.

And what of the Franco-German cooperation that was key to the EU during its inception, and more recently instrumental in charting Europe's course through its crisis?

French voters ousted Nicolas Sarkozy as president Sunday and replaced him with a Socialist, Francois Hollande, a leader not at all committed to swallowing more doses of the EU's bitter austerity.

That raises questions about the Continent's key alliance, since German Chancellor Angela Merkel is the staunchest champion of Europe's strategy of belt-tightening.

However, some see the unraveling of the Merkel-Sarkozy pairing as possibly a good thing.

The two were so close that they were collectively dubbed "Merkozy." They met before each EU summit to make decisions that, critics say, the other EU heads of government were simply expected to endorse.

Europeans increasingly saw a democracy deficit in which the top players were bullying weaker members into submission. "That was not the right thing to do for Europe," said Paul De Grauwe, an economist with the London School of Economics. "This is the reason the union might break up."

Or one of the reasons.

The other is the potential catastrophe of Greece breaking away from the euro.

If that were to happen, virtually every Greek with euros in the bank would rush to withdraw them and deposit them abroad, Darvas said. Greece's financial system would collapse within days, and the country would suffer a terrible financial crisis -- far worse than the one it now is enduring.

Beyond that, analysts say that Greece's exit from the euro would leave investors wondering which country would be next, raising the prospect of a financial contagion worse than any that has been seen in the course of the crisis.

"The European project will be in danger," Darvas said.

Some experts say that slowing down the push for budget balancing while stimulating the economy could form the basis of a more successful EU strategy.

As the political wrangling in Greece continues, the question of whether the union will hold together, whether Schuman's 1950 dream will survive, hangs in the balance.

De Grauwe says Europe is today entering treacherous terrain, "testing the political viability of the project."