Having Europe-wide economic synergy creates stronger corporate players, leads to lower-priced goods for consumers, and rewards innovation. Conversely, European economic fragmentation could subject companies — along with their managers, employees, unions, and regulators — to greater competitive pressures and hurdles. The virtues a single market offers are a necessity just to stay in the game. No economic crisis, no matter how severe, can do away with that logic.
The European countries that have so far weathered the storm are the ones that most benefit from global commerce: the Scandinavian countries; the Benelux countries; some of the new E.U. countries, such as Poland, Slovenia, and the Czech and Slovakian republics; and Germany, whose economic health has been furthered by its ability to trade across Europe in a single currency. The countries in trouble are those that are not globally competitive. Government leaders of European countries all agree that increased economic competitiveness is a must; they might disagree about how best to generate it, but not about its importance.
One recent side effect of the crisis has been to raise the intensity of proposals for convergence and reform. Suddenly, there is an enormous push for reconciling European labor practices (not making them identical among countries, but bringing them closer together). The goal of a single E.U. patent, which has been held back for decades by fruitless negotiation, will reportedly soon be realized. The power of cross-national European financial markets has also been boosted by the crisis; several national governments that have previously resisted convergence now see the European Central Bank (ECB) and euro bonds as signposts to a desirable future (even though they require greater economic, fiscal, and political convergence and greater enforcement at the center). A noteworthy example of the willingness to change under economic pressure was seen in Belgium in November 2011: The downgrading of the country’s national debt by Moody’s led the Belgians to form a government in one weekend, something they had refused to do for the previous 18 months.
Indeed, the countries in trouble are those that did not play fair with the E.U. project’s assets. They borrowed heavily in euros, drawing on credibility that was derived from the ECB (and its member banks, especially the Bundesbank), but then did not respect the agreed-upon 3 percent budget deficit figure, and did not keep their commitments to the fiscal compact. France, for example, increased its national debt during the 2000s (the first decade of the euro) from 60 to 90 percent of GDP. The liquidity crisis of 2008 suddenly exposed those countries that did not live within their means, and their borrowing rates soared. (For countries today, living within one’s means is generally regarded to mean holding a national debt of less than 60 percent of GDP.) The financial crisis that followed exposed the weaker European countries, which now must fall in line. The wake-up call was rude in some places, most notably in Greece. But in Europe overall, the backlash has been unexpectedly mild; public opinion allowed the Eurogroup to offer a recent rescue package to Spain of €100 billion (US$124.8 billion).
Despite the magnitude of the reforms that may be needed — including ways to manage the basic contradiction between a single currency and multiple decision-making sovereignties — the evidence suggests that Europe is ready to get its financial house in order. Some doubt remains about whether the reforms are rapid or broad enough to succeed, but the seriousness of the effort and the solidarity behind it are undeniable. Portugal, for example, has set an example for what it means to accept hardship in turnaround, with an eye on the post-crisis future and a heart regretting past excesses and admitting change is needed. The rescue package for Spain also fuels hope that European national governments can play as a team. Germany itself has shown how it is possible to return from a crisis — specifically the stress of reunification in the early 1990s — to become a vital global player. Strong management united with positive labor relations created a growth engine in Germany. This required great political will and leadership, but it happened — and it can happen elsewhere in Europe.