Who Lost the Euro?

The arc of Europe’s postwar history is turning toward tragedy. It isn’t just that much of the Continent has fallen into a new Great Depression, or that in some countries things will get worse before they get better. It isn’t even that the whole mess was avoidable in the first place. It’s that the crisis is dividing Europe along the very lines the European project was intended to erase.

Decades of clichés about European “solidarity” and “the European idea” are being held up to ridicule. The notion that Greeks, Spaniards, Britons, Germans, and Italians are instinctive partners whose commonalities transcend their cultural differences and historical enmities—that “Europe” is a real community, not just a heavily worked-over blueprint in Brussels—turns out to be, let’s say, disputable. Ancient stereotypes are as livid as ever, framing conversations about the crisis right across the European Union. Germans are bossy and severe. Italians are idle. Greeks are corrupt. Brits are arrogant. The French are vain. So much for 60 years of European unification.

Until recently, Germany could claim to be expressing the consensus of rich northern Europe, but no longer. France has chosen the socialist Francois Hollande as president, ditching German Chancellor Angela Merkel’s erstwhile ally, Nicolas Sarkozy. The resolve of other northern governments to stand with Merkel in her demands for fiscal austerity in the south is weakening.

Meanwhile, resentments thought to be dead and gone have revived. Three generations after the end of World War II, newspapers in Greece publish caricatures of Merkel as a swastika-sporting Nazi. In Spain, Italy, and other countries suffering the stress of a German-directed drive to restore Europe’s public finances, anti-German sentiment is better disguised but no less widely held. Germany stands increasingly isolated in a union that was intended, not least by Germany’s own leaders, to bind and subdue the country within a larger whole.

Why did it all go wrong? Three main reasons: French grandiosity, German shame, and a universal law of bureaucratic self-aggrandizement. Together these formed a European Union that was poorly adapted to the stresses the project was sure to encounter. The EU was perhaps unlucky that the crisis came when it did—before national loyalties had diminished and an emerging European identity had begun to take their place. Yet the EU’s designers had some sense of the risk they were running. They gambled and lost.


The overriding goal for a Europe in ruins after 1945 was to create a secure zone of peace and prosperity. Reconciliation between France and Germany, formerly bitter enemies and sure to be the dominant economic entities in a new Europe, was vital. As a matter of the highest priority, the two countries formed a close alliance and began building a new, united Europe around it. They began modestly in 1951 with the European Coal and Steel Community, but they entertained bigger ambitions from the outset.

As early as 1957, the Treaty of Rome enshrined the notion of “ever closer union.” This became the organizing principle for Europe’s subsequent evolution. The path not taken was that of an enhanced free-trade area, a zone of economic cooperation among sovereign states, a kind of Nafta-plus. The architects of European integration had larger designs. If Europe was to compete and engage on equal terms with the U.S., it would need to aim higher. Ultimately, a United States of Europe was the goal.

Germany mainly wanted a broader union—to surround itself with friendly states even if the newcomers were at different stages of economic development than those at the European core. France sought a deeper political union, one that would subdue German economic power and give Paris more reach. Compromising, they chose to broaden and deepen at once. The European Economic Community expanded to take in new members. It developed a thin, yet feverishly proliferating, federal layer of government, complete with a parliament and executive. These two drives were in tension. Members of an ever-widening union had less in common than countries in the advanced-economy core, making political and economic integration ever harder.

The critical juncture was reached in talks for the Maastricht Treaty of 1992. This provided for European monetary union, the boldest step yet.

As expected, France was keen on the new single currency: This was deepening with a vengeance. Under then-existing arrangements, French monetary policy was in practice constrained by the choices of Germany’s mighty central bank. France had no vote on the Deutsche Bundesbank’s governing board, but its interests would be recognized by the European Central Bank. Back then, France saw monetary union as adding to, not subtracting from, its own monetary sovereignty.