Future of the European Union in doubt as crisis exposes deep divisions

Can the EU survive Europe’s crisis?

LONDON — Forged out of the ashes of World War II and the end of the Cold War, the European Union was meant to create peace and prosperity across the region. But Europe’s debt crisis has laid bare deep financial and cultural divisions within the 27-nation bloc that may never be bridged.

The fateful decision to make the EU effectively a halfway house — tying its member countries into a joint currency and interest rate decisions, while allowing them to retain control over national budgets and taxes — has left the fractured grouping at a crossroads.

Further political and economic integration leading to a common treasury — a central government, in effect — could rescue the ailing 11-year old euro currency, and some say now is the time to sieze the moment.

But what the head orders is not always what the heart desires: Greeks, Germans and even eurozone outsiders like the British are fiercely protective of their independence, their languages and ways, including the right to decide how they spend their own tax dollars.

As the possibility of EU disintegration — or a split among its members — looms larger, the current crisis may just have exposed the futility of ever trying to establish a United States of Europe. The recent agreement by member governments to put up $1 trillion in loans and guarantee to backstop troubled governments remains only a short-term fix to stave off bond market panic.

The current union “was an attempt to put together countries that really weren’t ready to be put together,” said Stephen Lewis, senior economist at London-based Monument Securities.

“The euro can go limping on for a while and they’ll try to enforce the packages for the deficit countries, but ultimately there’ll likely be a social explosion amid a sense of hopelessness.”

Publicly, several leaders in the bloc are doing all they can to avoid this “end of the EU” scenario, talking up the benefits that come with a stable political and economic bloc representing half a billion people — 7 percent of world consumers — and a fifth of world trade.

Germany’s foreign minister, Guido Westerwelle, stressed this week that “European unification, the success of Europe, remains the foundation of German foreign policy.”

“We are convinced Europeans — I would even say that we are European patriots,” he said.

In many ways, Europe is not as dissimilar to the United States as it may appear: the US is by no means a unitary state. It is less coherent than the EU, for example, on issues like the death penalty and also has wide differences among state budgets.

Jack Lang, a longtime French government minister and advocate of Franco-German cooperation, is among those pushing for Europe to move closer, with France and Germany setting an example. He wants the two countries to share government ministers, universities, companies, defense projects.

“We must move to a higher speed, project ourselves, be futurist,” he said.

But the EU is also an organization that took 15 years to decide the definition of chocolate and has engaged in disputes over everything from beef to asylum seekers.

The crisis currently engulfing the bloc is a product of its own cautious creation. The Maastricht Treaty of 1993 that ushered in the euro set up a monetary union. But, wary of demands for national sovereignty — a concept as old and as treasured as international politics — it did not order control over how members raised and spent their taxes.

Members instead agreed to a Stability and Growth Pact, limiting budget deficits to 3 percent of gross domestic product. Policing of the pact equated to little more than a rap on the knuckles for offenders, of which there have been many. Greece, which lit the fuse for the current crisis, was far above that limit during the “good years” and it has been joined by many others since the downturn.

A fiscal union, where budgets and taxes are decided centrally, would prevent member nations from running up big deficits and allowing money to be diverted across the bloc as needed.

A major stumbling block is the fact that Europe is a geographical, not a cultural term. Differences in national characteristics are profound and deeply sensitive in a grouping that has 23 official languages. French linguistic pride is manifested in laws that make it illegal to play too many English songs on the radio. Austria’s religious tradition preventing stores from opening for trade on Sundays would horrify many Britons who view extended shopping hours as a national entitlement. Italians lingering over an afternoon coffee contrast with clock-watching workers in Germany.

Recently retired science teacher Gerard Blanchet was 11 when American troops liberated his town in Alsace from Nazi forces, and still tears up at happy memories of the war’s end. He’s a staunch supporter of a peaceful Europe, a Europe that cooperates — but not so keen on one that shares a single treasury and budget.

“I adore Americans, I adore America. But Europe is not America,” Blanchet said in Paris. “How many languages do you need to know to go from California to Maine?”

“We are after all different in our definitions of things, how much we want to spend on health care, on schools, on culture,” he added.

Many blame these differences — cultural bleeding into financial — for exacerbating the current mess. Resentment is fostering among Northern Europeans, used to long working hours and subjected to tighter spending constraints by their governments, who are paying for the profligacy of their neighbours in the south, where the sun shines and siestas are an entrenched part of life.

“Now maybe it will be those countries that have managed their economy well that will pay for those who have mismanaged and that is not a fun thought,” said nurse Kirsten Larsen, 66, in Stockholm.

This rough north-south divide opens up a potential third way between the creation of a monetary union and the total dissolution of the EU: splitting the bloc in half.

A new currency region centered around Germany would, some argue, be both more financially and culturally palatable. The terminology already doing the blog rounds for the putative currencies reflects the stereotypes — the northern “neuro” and the southern “pseudo.”

But this solution would be devastating for the countries included in a new southern zone. One survey suggests that the living standards of inhabitants would drop by 30 to 45 percent, which perhaps makes it unsurprising that Spaniards are more positive about the future of the EU than their northern neighbours.

“It’s quite a difficult moment on a world scale and they have to look for solutions together, not emancipate themselves or leave the euro system,” said Francisco Muniz, a 43-year-old concierge in Madrid. “At the end of the day the European Union is all of us.”

The attitude is the same in Italy, which has historically has been overrun from all sides, from Napoleon to Spain and where a common saying reflects a take-it-as-it-comes attitude: “France or Spain, what is important is to eat.”

Alfredo Mattei, a magistrate in Rome, said the EU had allowed Italy to acquire more power “in relation to the American economic colossus.”

“If we still had the lira, we would not have any guarantee of exiting from the crisis. With the euro that is some hope,” he said. “Without the Europe Union, Italy would have failed and would have been cut out of everything.”

Another option is that Greece becomes the first ever member to exit the European Union, leaving the bloc to get its house in order.

Reforms are already underway. The European Council this week announced plans to toughen the sanctions on the widely flouted rules barring the buildup of national debt and deficits, without providing details. Britain, Italy and Spain have all announced budget cuts this week.

Analysts say the EU could also let slide the requirement that new entrants to sign up to the euro — Britain and Denmark negotiated exemptions to the joint currency while Sweden has circumvented its adoption by failing to meet EU criteria. Other new members in Eastern Europe appear content to take their time meeting the tough requirements for entry.

But it may be too little too late as the crisis reawakens feelings of national sovereignty and countries scramble to impose new laws to prevent a repeat.

France and Germany, the co-founders of the euro and probable leaders of a northern zone, have fallen out over Germany’s unilateral plans to ban some types of short selling to try curb market speculation.

Britain’s new prime minister, David Cameron, has said he won’t wait for EU approval to push ahead with a levy on banks. French Prime Minister Nicolas Sarkozy reportedly became so frustrated at recent talks that he banged his fist on the table as he threatened to withdraw his country from the euro.

Monument Securities’ Lewis believes worse is ahead.

“I think we will probably have a final existential crisis in two years,” he said. “Although that won’t lead to dissolution immediately; that might take another 10 years.”

Angela Charlton in Paris, Rosy Santella in Rome, Colleen Barry in Milan, Harold Heckle in Madrid, Malin Rising in Stockholm and Geir Moulson in Berlin contributed to this report.