Europe's Irrepressible Conflict

Europe's Irrepressible Conflict

By Michael Gerson - December 23, 2011

Oh, how I love humanity,
With love so pure and pringlish,
And how I hate the horrid French,
Who never will be English!
-- G.K. Chesterton

WASHINGTON -- Under the strain of the debt crisis, Europe is revealing cracks it has long tried to plaster, paint and ignore.

Prime Minister David Cameron's recent veto of a tighter European fiscal union brought angry criticism. Some continental legislators called for a European Union without the inconvenience of the United Kingdom. French leaders, with their own country's credit rating under threat of downgrade, tried to direct the attention of rating agencies to British economic failures -- a blame-shifting strategy practiced by guilty children on playgrounds everywhere. "There are few more comic spectacles," responded the Daily Mail, "than Frenchmen throwing fits of Gallic pique against the victors of Waterloo." In hours of national need, England still turns to the Duke of Wellington. History persists.

British officials report that diplomatic tempers have now begun to cool. Few contemplate a decisive break along the English Channel. The U.K. will continue its decades-long tightrope walk -- seeking free access to a single European market without joining a single European superstate.

Cameron's decision on the fiscal treaty was consistent with this approach. Britain's financial sector represents more than 10 percent of its economy. Europeans would love to tax and regulate it. About 75 percent of a proposed European financial transaction tax would fall on the United Kingdom. So Cameron reasonably rejected a deal that did not include safeguards for the British financial industry.

But Europe's division runs deeper than the details of tax policy. The European Union not only encompasses 27 nations but two distinct economic and social models: Anglo-Saxon liberalism and the Franco-German version of highly regulated capitalism. Britain and a few other nations (such as Demark, Poland and Hungary) have often defended the former within the councils of Europe -- an important, uphill task.

Former Prime Minister Margaret Thatcher, however, predicted an irrepressible conflict. European federalism, she argued, was inseparable from statism and protectionism. Rather than containing German influence, the European project eventually would be a bureaucratic leviathan dominated by Germany. And Thatcher thought the outcome of such integration would be unstable. It would leave German taxpayers to provide "ever greater subsidies for failing regions of foreign countries," while condemning "the south European countries to debilitating dependency on handouts from German taxpayers." Smaller nations would eventually resent "economic disruption, rule by remote bureaucracies and the loss of independence."

For decades, the European Union has tried to avoid a showdown between British and continental economic visions. But the debt crisis has forced Germany into a more aggressive posture. Fiscal limits -- in practice, political limits -- must be imposed on failing, irresponsible countries to prevent German taxpayers from providing endless bailouts. This approach is perfectly reasonable -- for Germany. But, as Thatcher argued, "attempts at cooperation that are too ambitious are likely to create conflict."

The last few years have revealed the relative strengths and weaknesses of the British and continental models. Yes, the United Kingdom remains an economic mess, with 0.5 percent growth and a budget deficit at almost 10 percent of GDP. But Britain has provided investors with political reassurance. It has a stable coalition government that has pushed for emergency budget reductions. It remains free to manage its own currency and set its own interest rates. As a result, British bonds are regarded as a safe harbor.

In contrast, the eurozone has bumped along from crisis to crisis, doing the minimal amount to avoid immediate disaster. Its most recent agreement promises to impose universal fiscal discipline by unspecified mechanisms, under questionable legal authority, after a perilous political process involving a variety of parliaments and constitutional courts. Europe seems destined for policies that impose austerity without promoting competitiveness and economic growth -- a recipe for public resentment. A likely recession would make the financing of public debt even more difficult. This month, Standard & Poor's put 15 eurozone countries on warning for a credit downgrade.

Critics of the European project may feel vindicated, but they should not be pleased. About 40 percent of British trade, and 15 percent of U.S. trade, is conducted with continental Europe. The fates of American, British and other European banks are closely tied. The breakup of the eurozone would not be amicable or orderly. Even those of Thatcherite sympathies have little choice but to root for Europe now. 

Copyright 2011, Washington Post Writers Group

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