Europe's Shared Fate Part I

We're going to take a part of the next few weeks and look at the European Union from the basic principle of whether it will survive as a single economic entity.  Today and tomorrow we'll excerpt an excellent Stratfor article on Europe's shared fate.  

Europe, Nationalism and Shared Fate

By George Friedman

The European financial crisis is moving to a new level. The Germans have finally consented to lead a bailout effort for Greece. The effort has angered the German public, which has acceded with sullen reluctance. It does not accept the idea that it is Germans’ responsibility to save Greeks from their own actions. The Greeks are enraged at the reluctance, having understood that membership in the European Union meant that Greece’s problems were Europe’s.

And this is not just a Greek matter. Geographically, the problem is the different levels of development of Mediterranean Europe versus Northern Europe. During the last generation, the Mediterranean countries have undergone major structural changes and economic development. They have also undergone the inevitable political tensions that rapid growth generates. As a result, their political and economic condition is substantially different from that of Northern Europe, whose development surge took place a generation before and whose political structure has come into alignment with its economic condition.

European Unity and Diversity

Northern and Southern Europe are very different places, as are the former Soviet satellites still recovering from decades of occupation. Even on this broad scale, Europe is thus an extraordinarily diverse portrait of economic, political and social conditions. The foundation of the European project was the idea that these nations could be combined into a single economic regime and that that economic regime would mature into a single united political entity.....

Europeans, of course, do not think of themselves as Mediterranean or Northern European. They think of themselves as Greek or Spanish, Danish or French. Europe is divided into nations, and for most Europeans, identification with their particular nation comes first. This is deeply embedded in European history....

There is a paradox in the European mindset. On the one hand, the recollection of the two world wars imbued Europeans with a deep mistrust of the national impulse. On the other hand, one of the reasons nationalism was distrusted was because of its tendency to make war on other nation-states and try to submerge their identities....

The European Union was designed to create a European identity while retaining the nation-state. The problem was not in the principle, as it is possible for people to have multiple identities. For example, there is no tension between being an Iowan and an American. But there is a problem with the issue of shared fate. Iowans and Texans share a bond that transcends their respective local identities.... A crisis in Iowa is a crisis in the United States.....

The Europeans tried to finesse this problem. There was to be a European identity, yet national identities would remain intact. They wrote a nearly 400-page-long constitution, an extraordinary length. But it was not really a constitution. Rather, it was a treaty that sought to reconcile the concept of Europe as a single entity while retaining the principle of national sovereignty that Europe had struggled with for centuries. At root, Europe’s dilemma was no different from the American dilemma — only the Americans ultimately decided, in the Civil War, that being an American transcended being a Virginian.....

When the Berlin Wall came down in 1989, there was no question among the Germans that East and West Germany would be united. Nor were serious questions raised that the cost of economically and socially reviving East Germany would be borne by West Germany. Germany was a single country that history had divided, and when history allowed them to be reunited, Germans would share the burdens.....This was the same for the rest of Europe that organized itself into nation-states, where the individual identified his fate with the fate of the nation. For a Pole or an Irishman, the fate of his country was part of his fate. But a Pole was not an Irishman and an Irishman was not a Pole. They might share interests, but not fates. The nation is the place of tradition, language and culture — all of the things that, for better or worse, define who you are. The nation is the place where an economic crisis is inescapably part of your life.

When the Greek financial crisis emerged, other Europeans asked the simple question, “What has this to do with me?” From their point of view, the Greeks were foreigners....The Germans might be affected by the crisis — German banks held Greek debt — but the Germans were not Greeks, and they did not share the Greeks’ fate. And this was not just the view of Germany, the economic leader of Europe, by any means...

The bailout of Greece is designed not because Greece is part of Europe, but because it is in the rest of Europe’s interest to bail Greece out. But the heart of the matter is that Greece is a foreign country.

Tomorrow:  The Question of European Identity

*Note I am long in client and personal accounts ETFs that have part of their investments in certain European countries.