EU epitaph?

The headline of what the Wall Street Journal bills as an insider narrative of the escalating European debt crisis is "Dithering at The top Turned EU Crisis into Global Threat."  I'm not sure dithering is quite right. The story suggests that European leaders couldn't agree not because they were indecisive per se but because their national interests were at odds and each was answerable to his or her own people. At one moment, French President Nicholas Sarkozy expressed the problem succinctly:

Finnish premier Jyrki Katainen also complained. His parliament wanted collateral in exchange for more Finnish lending to Greece. "No collateral, no agreement from me," he said.

Mr. Sarkozy was peeved. "All our parliaments can cause problems," he said.

Chronicle of a crisis diffused?

My perception as a semi-informed layman of the latest chapter in the Eurozone crisis has been singular, and maybe worth recording.

For months, the supremely knowledgeable columnists on my favorite opinion page, the FT, along with many other observers, have played Greek chorus to an EU tragedy unfolding in several acts. Most recently, in the runup to the early December EU summit, Wolfgang Munchau, Martin Wolf, Philip Stephens and others have warned that the Eurozone is on the brink of avoidable doom. The most recent lament has been that the European Central Bank could at any given time end at least the immediate existential crisis by buying bonds Italian and Spanish government debt -- on the secondary market, since the EU charter apparently bans the ECB from buying the bonds directly. But the ECB's new president, Mario Draghi, like his predecessor, has demurred. The summit yielded only a pact for stricter enforcement of budget austerity standards, which does nothing to ease the pressure of rising interest rates.

Then, yesterday, I pick up some uncertainly-sourced snippet to the effect that banks are buying Italian and Spanish debt, those countries' interest rates are falling, and some are saying that the crisis may be over.  Yeahrright....

This morning, however, the Times' Floyd Norris brings those glimmers into focus:

Münchau to EU: Signal now that Eurobonds are forthcoming

Today, an eponymous Wolf Munch Rock award (so named because the truth is hard to swallow) to Wolfgang Münchau, for an op-ed that's at once a primer on the dynamics of the European sovereign debt crisis  and a powerful brief (judged on its own terms) for issuing Eurobonds sooner and working out the political implications later.

First, for the uninitiated, Münchau spells out why it's so destabilizing for the solvency of member states to come in doubt -- and why the haircut for banks holding Greek debt may have exacerbated rather than relieved the markets' panic:

I am hearing from Berlin that the German government believes that the arrival of Mario Monti as Italian prime minister is all it will take to calm the markets. This unsurprisingly complacent view misjudges the underlying dynamic of the most recent events. The cause of the panic attack was the European Council’s decision on October 26 to renegotiate the private sector participation of Greek sovereign debt holders. With that decision European leaders destroyed what was left of a functioning eurozone government bond market. Investors interpreted it – correctly in my view – as a precedent. They then dumped their Portuguese, Spanish, Italian and even French government bonds. As of now, there is only one significant risk-free asset in the eurozone – German government bonds.
The German government bond market is large and liquid, but not large enough to sustain the world’s second largest economy. The presence of a risk-free asset can hardly be overstated in a modern financial system. Each insurance company, each pension fund needs to invest part of its income in such assets. Through a combination of short-sightedness and financial illiteracy, the European Council has now put itself in a position where it desperately needs Eurobonds, if only to assure the existence of a functioning financial sector.

Next, why the European Financial Stability Facility (EFSF) is inadequate:

The death and birth of Europe

In a recent column, Gideon Rachman trembled at the prospect -- he did not really indicate how likely a prospect -- of "the death of the European dream":*

It is natural that international attention should focus first on the economics of the crisis in Europe. But there are also broader, if less immediately obvious, political consequences. It is easy to mock the pretensions of the authorities in Brussels. But the fact is that the EU does – or perhaps did – stand for something important on the world stage.

What Europe represents is not so much raw power as the power of an idea – a European dream. For internationalists everywhere, for believers in much deeper co-operation between nations, for those pushing for the establishment of an international legal order, the EU is a beacon of hope.

If the European experiment begins to unravel – after more than 60 years of painstaking advances – then the ideas that Europe represents will also suffer severe damage. Rival ideas – the primacy of power over law, the enduring supremacy of the nation state, authoritarianism – may gain ground instead.

It should be noted that the "European dream" that Rachman semi-eulogizes is not real political union -- a United States of Europe. Rather, he admires the model of increased cooperation among nation-states, a kind of multilateralism-on-one-continent or U.N. of the future. He fears that the current crisis is devaluing the demonstration effect of the model. Beyond that modest correction in intellectual markets is a darker fear, expressed in a prior column (March 2, 2009):

P.S., I love EU: Rachman's startled valentine to the European Union

It's time for another Wolf Munch Rock Award - so named because the truth is often hard to digest.

It's also named for Financial Times columnists Martin Wolf, Wolfgang Munchau and Gideon Rachman, mainstays of that oasis of dispassionate analysis the FT Comment page. It goes to an observer of world news and trends whose writings exhibit deep (if understated) expertise, fact- and evidence-based exposition, wide-angle perspective on large-scale trends, and theses based more on observation and analysis than ideology.

This week's award goes to Gideon Rachman, for a column that exemplifies those virtues, garnished with Rachman's own signature understatement, irony, self-deprecation and contrarianism -- in this case directed against himself. A backhanded tribute to the European Union, the column is also a blackflipped mea culpa: I was wrong because I was right:

I am ready to retire as a eurosceptic. The European Union is in trouble. But rather than smirking – which would be the normal reaction of a sceptic – I am alarmed.

The premise is simple enough. European political union is a pipe dream, and a dangerous one. European economic union, on the other hand, "is the best example we have of international governance," a pillar of stability and prosperity. If protectionist pressures unravel the benefits of the common market, the results could be catastrophic.

What's so very interesting, though, is Rachman's personal journey from loving to hate the EU for its political pretensions to learning to love its now-endangered economic accomplishments. Even more interesting, it's the very weaknesses entailed by incomplete political union than now endanger economic cooperation. Rachman despised the pretensions, recognized the weaknesses and now trembles for the Rube Goldberg contraption that fostered European prosperity and freedom in spite of it all:

In January 2001, I arrived in Brussels with several firm and unfavourable convictions about the EU. I believed that most ordinary Europeans felt far more loyalty to their nation than to Europe. I thought that steadily enlarging the powers of Brussels was undemocratic and dangerous. I reckoned that in a crisis, nationalist instincts would come to the fore. I suspected that the EU’s new currency – the euro – was liable to run into trouble. And I believed that the Brussels-based elite was a “new class” that had confused its own interests with those of the continent of Europe.

Eight years on, I look back at these old prejudices – and smile at my foresight. The past few years have provided a graphic demonstration of the feeble popular support for the European project....The strain of the economic crisis is indeed opening up divisions within the Union. An emergency EU summit was called this weekend to combat protectionism. Several of the new EU members from central Europe are facing banking and financial crises – and the older members have refused to bail them out....

Arguably, all my darkest suspicions about the European project are about to be vindicated. So it is an odd time to renounce euroscepticism.

But it is precisely the threat to the EU that has focused my mind. Plans for a political union in Europe were always crazy. But the four freedoms already established by the EU – free movement of goods, people, services and capital – are huge and tangible achievements. It would be terrible to see them rolled back.

Appreciation for those "huge and tangible achievements" under stress focuses the mind indeed:

If Europe starts rolling back the four freedoms, the implications will stretch well beyond economics. Protectionism and nationalism are close cousins. The principles of consultation, co-operation and open borders within the EU have helped to repress the old, nationalist demons.

Protectionism and nationalism are close cousins. Variations on that warning have been plentiful on the FT comment page. It's the overriding back-to-the-future fear haunting the current crisis. But this phrasing is particularly resonant -- filtered as it is through Rachman's longstanding respect for European nationalist resistance to EU political ambitions.

Rachman closes with a trope that captures the full irony of his turnaround:

Strangely enough, I now feel a certain protective warmth towards the embattled eurocrats in their Brussels skyscrapers. This would have been hard to imagine when I arrived in the city all those years ago. But it has finally happened. I love Big Brother.

"Big Brother," it seems, has turned out to be King Log rather than King Stork.

This column epitomizes what I value in the FT Comment page. FT columnists write "essays" in the original sense -- trials, thought experiments. Often, they visibly think their way through to a conclusion -- and it's not just an empty rhetorical exercise leading us to a false eureka. Rachman, Wolf, Stephens, Munchau et al often take readers through their own uncertainties, ambivalences, fears: they frame policymakers' dilemmas with sensitivity and an appreciation for hard choices. I'm not sure how a crew with such congruent sensibilities was assembled. But in this era of newspaper meltdown, I look at the page with the same anxious don't-know-what-you've-got-till-its-under-siege regard that Rachman casts on the EU.