Closer or more distant?

The very thing that was supposed to bring Europe together is driving it apart. The single European currency is a cornerstone of the European dream. Like many, I still remember the excitement of a midnight on New Year’s Eve, 2001.At the stroke of midnight, in a small Irish pub, I handed over my old Irish pounds to buy a pint of Guinness, and was handed back shiny, beautiful new euro coins. The same thing was happening all over Europe that night.The monetary union that linked Europe’s currencies had been in place for years prior, but the introduction of the actual coinage and notes changed how we thought about ourselves as European citizens: We now felt part of one unified continent.Less than a decade after this bright beginning, a ferocious economic crisis has spread across the eurozone. Ireland, Portugal and Greece have been bailed out by the EU and, after the second Greek bailout, many fear that Spain and Italy will soon follow. Writing in Le Figaro recently, three French economists called for the euro to be abandoned “to save the Europeans”. Gerard Lafay, Jacques Sapir and Philippe Villin wrote: “Far from promoting the hoped-for convergence, the construction of the euro has, in fact, accentuated the differences between nations … the euro is dying”.In Dublin last November, during the tense EU-IMF bailout negotiations, the mood was one of shock and muted anger – yet there were no riots. What really affected the Irish people was the astonishing fact that we had suddenly lost so much of our sovereignty: major economic and policy decisions were no longer our own. As a nation that had for eight centuries fought against foreign domination, many felt like a colony again: except this time of Brussels. Ireland had for decades been consistently ranked as one of the most pro-EU nations in Europe. Yet a sense of betrayal followed the EU-IMF bailout. Many asked: who was really bailing who out?After all, German and French bondholders had heavily invested in the failed Irish banks. Those banks had collapsed. Under the normal rules of capitalism, that investment should be wiped out. Yet instead, the Irish people were being given massive high-interest loans to pay back a failed investment to foreign bankers. Nobel prize-winning economist Paul Krugman said that the Irish bailout was a joke, and a chorus of other economists agreed that it merely delayed the inevitable default and gave the Irish people debts that were not their own. A feeling of distrust and hostility toward EU began to emerge.Some feared duplicity: During Ireland’s second Lisbon Treaty referendum in 2009, Ireland was assured that it could retain its low corporation tax rate of 12.5% – a key driver of inward investment for Ireland. Yet in early 2011, EU leaders began to insist that the Irish corporation tax rate be “harmonized”. The Irish people began to feel that they were being sacrificed to save large European banks and the euro. Yet the euro, many now argued, was a principle cause of Ireland’s economic collapse: A 2009 report for the World Bank said that the Irish economy went awry largely because of euro membership. At the beginning of the decade, eurozone interest rates were set very low to suit France and Germany. This meant Ireland could not control a runaway property boom and rapid wage inflation. That bubble, in turn, led Ireland’s dramatic economic collapse.As unemployment hits 15%, wages are being slashed, even as taxes rise. The Irish appetite for radical solutions is increasing: Polls show that a majority want to default on the bank-related debts and to “burn the bondholders”; respected economists now argue that Ireland should leave the euro and return to an Irish pound, perhaps linked to sterling.The euro crisis has taught Europe an important lesson: too much integration, instead of bringing nations closer, can actually drive them apart. Conversely however, more carefully limited integration might help to bring them back together again – and get the EU project back on a more harmonious and sustainable path.