After more than a year in crisis mode, the euro-zone countries are still scrambling to salvage their common currency. Their plan is to stick to the fiscal discipline needed to calm financial markets while introducing measures that could seed growth. And it’s likely they will succeed.
Whether or not Greece exits the euro zone, Germany will ultimately do what is necessary to keep the currency alive; the euro is too big to fail. German Chancellor Angela Merkel and new French President Francois Hollande — leaders of the key partnership that anchors the European Union — appear headed toward a compromise between Berlin’s call for austerity and Paris’s preference for stimulus.
Though it is not too late to save the euro, it is growing too late to save the E.U. The German-enforced belt-tightening needed to bring down debt is producing a popular backlash against the E.U. that could be its undoing. A dangerous gap has opened between the collective governance Europe needs to thrive and national populations that have grown openly hostile to the European project. Saving the euro is the easy part; restoring confidence in integration will prove both more decisive and more elusive.
The E.U. has doled out successive years of economic pain in the name of good housekeeping, but in doing so it has suffocated growth. By the end of this year, Greece’s GDP is expected to have fallen by almost 20 percent since 2009. Italy and Spain are back in recession. Unemployment among Spanish youth now stands at about 50 percent. The euro zone as a whole experienced zero growth during the first quarter of 2012.
These conditions are eating away at the bonds that hold the E.U. together. Not only has the push toward austerity claimed 11 governments, but one election after another has strengthened the political forces that are skeptical of integration. Most of the main parties have been converging toward the ideological middle and remain firmly committed to the union. But the political mainstream is fast losing market share to smaller parties on the left and right that are much less taken with the E.U.
In Greek elections last month, the share of votes won by the two main parties plunged to just above 30 percent, down from more than 75 percent in elections in 2009. The primary beneficiaries were parties that oppose the austerity package that is Greece’s ticket to staying in the euro zone. With the political landscape so divided that no party has been able to form a government, another vote will be held June 17. Despite the renewed campaigning, some pro-austerity politicians are reportedly shying away from public events out of concern for their physical safety.
In France’s first round of presidential voting on April 22, roughly 30 percent of the electorate voted for either Marine Le Pen, whose far-right party calls for France’s withdrawal from the euro zone, or the leftist Jean-Luc Mélenchon, who frequently attacks the E.U.’s economic liberalism and its infringements on French sovereignty. As they campaigned during the runoff round, it is hardly surprising that both Hollande and Nicolas Sarkozy, the incumbent he defeated on May 6, played the anti-E.U. card.