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In Europe, Breaking Up Is So Easy to Do

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By William Drozdiak
Sunday, March 1, 2009

BRUSSELS -- When I first arrived in this city to play professional basketball in 1971, the place was brimming with hope that a United States of Europe might soon become a reality. Britain, Ireland and Denmark were poised to enter the Common Market, and the nine-nation "country club" harbored ambitions of becoming a dominant global force. But the dream evaporated like a desert mirage with the Arab oil embargo of 1973, as the continent's governments went their separate ways in a desperate scramble to stave off recession.

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Nearly two decades later, I rushed to Berlin as The Post's foreign editor to witness the fall of the Wall. Again, the magical vision of "one Europe, whole and free" captivated minds on both sides of the divide. East Germans made a beeline for that renowned consumer emporium, the KaDeWe department store on the Kurfurstendamm, which their communist leaders had ridiculed as a capitalist facade. As I watched throngs of Easterners in the food section crying in front of mountains of plump oranges and fresh bananas, I realized that their feelings of betrayal foreshadowed the demise of the Soviet empire.

That yearning to share the West's culture of freedom and prosperity propelled the European Union's strategy over the past 20 years to "widen and deepen" -- to embrace the new democracies in the East while compelling member states to adopt common policies such as the euro, the currency now used in 16 countries.

But suddenly, all the gains of the past decades are threatening to implode as Eastern Europe's economic vulnerability in the current financial crisis raises the specter of a new East-West divide, underscored by the nationalist animosities that have led to calamity in the past.

Already, commentators are warning that history could repeat itself -- that just as the Great Depression ushered in an era of political extremism that led to the rise of fascist and communist dictatorships, the current wave of financial turmoil could foment the kind of political demagoguery that could shatter the noble cause of European unity.

"It's been twenty years since Europe was united. What a tragedy if [it] should be split again," World Bank President Robert Zoellick, who was closely involved in the negotiations that led to the unification of Germany in 1990, said in a recent conversation.

For the past two decades, the former communist states in the East have enjoyed an economic boom. Western investors poured money in to create jobs and growth in a heady atmosphere of social peace and political stability aided by the countries' entry into the E.U. and NATO.

But in just a few months' time, Poland, Hungary, Latvia, Bulgaria and Romania have been sent reeling by a credit crisis that has caused growth rates to plummet and their currencies (not yet converted to the euro) to plunge in value. Eastern European countries need to repay short-term debts of more than $400 billion this year, and some don't have the resources to meet their payments, prompting concern from the International Monetary Fund and the World Bank, which Friday announced a $31 billion rescue package.

Car plants such as the Czech Republic's Skoda, which had been flourishing until last year, have suffered a sharp decline in orders from the West, forcing them to shorten the work week to four days. In the Baltic states, automobile sales fell 57 percent in the final months of 2008. Overall, demand across Europe for industrial and manufacturing goods fell by 22 percent at the end of last year.

Meanwhile, Austrian and other Western banks and insurance companies that hold East European debt are feeling enormous pressure at home to withdraw their capital. In the post-communist era, Austrian banks rushed headlong into Eastern markets, and now Austria's loans to the East amount to 70 percent of its gross domestic product. Some analysts fear that Austrian banks' dangerous exposure in Eastern Europe could cause a catastrophe in the way that the 1931 collapse of the Viennese bank Creditanstalt helped trigger the Depression.

As I traveled across the continent on a speaking tour in recent weeks, talking with audiences in Paris, Brussels, Duesseldorf, Berlin and Prague, I was struck by a rising anxiety that Europe's golden era of general peace and prosperity might be drawing to a close, that the vaunted social safety net is fraying and civic responsibility eroding. Most of all, I was struck by the growing alienation between the continent's haves and have-just-recently-hads.

In Prague, a new generation that barely remembers communist repression increasingly resents the 27-nation European Union. Even though the E.U. has showered the Czechs with lavish subsidies, it is now disparaged as unfairly allowing bigger Western governments to impose their will on small countries.


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